Ten Key Managerial Accounting Formulas
In This Chapter
Understanding accounting ratios
Using contribution margin
Analyzing price and quantity variances
Computing time value of money
Managerial accountants compute and provide information within a company. Like newspapers, their reports describe for managers the latest happenings inside their companies. However, unlike newspapers, which provide written articles, managerial accounting information is numeric, calculated using certain formulas. This chapter summarizes some of the most important formulas in managerial accounting.
The Accounting Equation
The accounting equation equates assets with liabilities and owners’ equity:
Assets are things owned by the company — such as cash, inventory, and equipment — that will provide some future benefit. Liabilities entail future sacrifices that the company must make, such as paying bills or other kinds of debts. Owners’ equity represents the portion of the company that actually belongs ...