The Accounting Equations Every Business Owner Should Know

 Accounting is one of the pillars of a thriving business. There are several different accounting formulas that Surrey chartered certified accountants implement to understand the minute details regarding cash flow, inventory turnovers, the sales and analyze the same for future reference. Accounting g equation, net income equation, break-even point equations, and similar formulas exist to make sure that your company is hitting a home run from the financial point of view. Whether you are an entrepreneur working on your start-up venture or a veteran businessman heading a conglomerate, have a clear idea of these simple yet vital formulas for maximizing profits. If you are interested to know what these accounting equations are and how exactly they work, read on till the end to find out!

What Are The Most Important Accounting Equations Used By the Experts In The Field?

Accounting formulas exist with two primary objectives. Firstly they make managing the finances and the money being invested in the business a lot easier. Secondly, these formulas are actually simple and even a layman can apply them without much difficulty. Some of the most critical accounting equations used by accounting and taxation firms in Croydon are mentioned below.

• The Accounting Equation: Also termed the balance sheet equation, the accounting equation is one of the fundamental formulas in this context. It includes all the assets owned by the company, the liabilities of the company, and the stockholder’s equity in case of multiple owners. The formula states that the monetary amount of assets should equal the sum of the equities and liabilities.

• Net Income Equation: The net income equation is fairly simple to understand. As the name suggests, this equation gives you the total or gross profit of your share in the business. Investors attach particular importance to this equation that it shows the trend of the business. According to the formula, the net income is equal to the difference between the revenues collected and the expenses incurred which is the investment going into the business. Tax investigating services in Croydon also takes this equation into account while investigating the tax situation of your company.

• Break-Even Point Equation: The financial transaction that is involved in any business deal and otherwise has many tiny distinct features. Naturally, broadly categorizing the transactions cannot produce the most accurate results. There are several aspects apart from the profit and losses, like the salaries payable, cost incurred in inventory and logistics, etc. that the company needs to consider. The break-even point equation is crucial because it gives you a clear idea of whether the profit you made can cover the costs you are responsible for. The break-even point equation states that the total profit is given by the difference between the sales and the sum of the fixed and variable costs for that particular quarter.