DEBIT & CREDIT

Debits represent the destination;

Credits represent the source of a financial
transaction.

Examples:
Cash
Accounts Receivable Examples:
Inventory Cost of Goods Sold
Land & Buildings Personnel Expenses
Equipment Depreciation
Licenses Office Supplies
Marketing
Interest Expenses

How to remember:

Accountants
Don’t
Expect

Low
Earning
Rates

Examples:
Examples: Paid-In Capital
Accounts Payable Retained Earnings
Accrued Expenses OCI
Unearned Revenue
Bank Loans
Loans Payable © 2022 XelPlus
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 CASH VS ACCRUAL ACCOUNTING
Accounting methods to determine when to record
revenues & expenses

CASH ACCRUAL
REVENUE When cash is received When it’s earned

EXPENSES When cash is paid When it’s incurred

Example:
Sales: 100 plates for $500 in cash Purchases: 100 plates for $100 on credit
20 hats for $200 in cash 50 hats for $100 in cash
30 hats for $300 on credit

CASH ACCRUAL

REVENUE
100 plates $ 500 100 plates $ 500
20 hats $ 200 20 hats $ 200
30 hats $ 0 30 hats $ 300
$ 700 $1,000

EXPENSES
100 plates $ 0 100 plates $ -100
50 hats $ -100 50 hats $ -100
$ -100 $ -200

PROFIT $ 600 $ 800

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 Reorder Level
Stock level of an item at which a business should order new supplies.

Reorder Level = Avg. Daily Sales * Avg. Lead Time + Safety Stock

Safety Stock = (Max Daily Sales * Max Lead Time) -

(Avg Daily Sales * Avg Lead Time)

Example
Avg Daily Sales: 40 mugs Avg Lead Time: 30 days
Max Daily Sales: 60 mugs Max Lead Time: 45 days

Safety Stock = (60 * 45) – (40 * 30) = 1,500 mugs

Reorder Level = 40 * 30 + 1,500 = 2,700 mugs

Economic Order Quantity (EOQ)

The ideal order quantity for an item that minimizes the total holding
costs and ordering costs in inventory management.

2𝐷𝑃 D = Avg. Annual Demand

EOQ = P = Purchasing Cost/Order
𝐻 H = Holding Cost/Unit

Example
Avg Daily Sales: 40 mugs Purchasing Cost: $20/order
Avg. Yearly Sales: 14,600 mugs Holding Cost: $2/unit

2 ∗ 14,600 ∗ 20
EOQ = = 540 units
2

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 INVENTORY
Current asset representing goods and
materials for sale or manufacture.

Types of Inventory

Raw Material Work in Progress (WIP) Finished Goods

Example
Buying and Selling Merchandize

1. Recording Purchase of Merchandize

Inventory X
Cash/Accounts Payable X

2. Recording Sale of Merchandize

Cash/Accounts Receivable X Recording of sales price
Revenue X

Cost of Goods Sold X Remove cost from

Inventory X inventory & release COGS

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 FINANCIAL RATIOS
Analyze financial statements and put
numbers in context

Return on Equity (RoE)

Purpose: How well can a company generate

profits from shareholder’s investments.
Target: 15 – 20%
Calculation: Net income / Shareholder’s equity

Profitability
Gross Margin

Purpose: Profit margin after subtracting direct

expenses such as labor and materials.
Target: industry-specific, avg. ~ 40%
Calculation: Gross Profit / Total Revenue

Current Ratio

Purpose: Enough Liquidity to cover short-term

Liquidity
liabilities?
Target: >1
Calculation: Current assets / Current Liabilities

Debt to Equity Ratio

Leverage Purpose: How is company financed?

Target: 1-2
Calculation: Total liabilities / Total equity

Price-Earnings Ratio (P/E)

Pricing Purpose: How is company financed?

Target: company specific, avg. ~ 15 - 25
Calculation: Share Price / Earnings per Share (EPS)

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 FINANCIAL RATIOS
Analyze financial statements and put
numbers in context

Asset Turnover Ratio

Purpose: How much sales generated with assets?

Target: industry-specific
Calculation: Total revenue / Total assets

Days Inventory Outstanding (DIO)

Purpose: How long inventory stays until it’s sold?

Target: industry-specific, avg. ~ 60 – 70 days
Calculation: Avg. Inventory / COGS * 365

Days Sales Outstanding (DSO)

Efficiency Purpose: How long to collect cash?
Target: industry-specific, avg. ~ 50 – 60 days
Calculation: Avg. Accounts Receivable / Revenue * 365

Days Payable Outstanding (DPO)

Purpose: How long to pay suppliers?

Target: industry-specific, avg. ~ 50 – 60 days
Calculation: Avg. Accounts Payable / COGS * 365

Cash Conversion Cycle

Purpose: How long to convert working capital into

cash flow?
Target: industry-specific, avg. ~ 60 – 70 days
Calculation: DIO + DSO - DPO

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 FINANCIAL RATIOS
Analyze financial statements and put numbers
in context

Growth

Purpose: Horizontal analysis – Increase/Decrease

compared to previous period
Target: n/a
Calculation: New / Old - 1

Percentage Increase/Decrease

Purpose: Planning – Calculate increased/decreased

value compared to previous period
Target: n/a
Calculation: Increase: Old * (1 + %)
Decrease: Old * (1 - %)

Compound Annual Average Growth Rate (CAGR)

Purpose: Average growth rate over certain number

of periods
Target: n/a
1
𝐸𝑛𝑑𝑖𝑛𝑔 𝑉𝑎𝑙𝑢𝑒 # 𝑜𝑓 𝑦𝑒𝑎𝑟𝑠
Calculation: −1
𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝑉𝑎𝑙𝑢𝑒

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 EXCEL FUNCTIONS
Most Common Functions for Analysis

SUM Add values in a range

COUNT Count of values in a range that are numbers
COUNTA Count of values in a range (numbers, text, errors, blanks)
SUMIFS Sum of cells in a range that meet multiple conditions
COUNTIFS Count of values in a range that meet multiple conditions

IF Check for a condition:

If check is True -> Return value;
Otherwise -> return alternate result

ROUND Rounds a number to a specified number of digits

- num_digits = 0; rounded to the nearest integer
- num_digits > 0; rounded to specified number of decimals
- num_digits < 0; rounded to the left of the decimal point

VLOOKUP Looks up a value in the leftmost column of a table and

returns the first corresponding value from a column to the
right.

XLOOKUP Searches a range, and then returns the item corresponding

to the first match it finds.

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 EXCEL FUNCTIONS
Most Common Functions for Analysis

AVERAGE Calculate the mean (arithmetic average) of values

MEDIAN Calculate the median (positional average) of values

YEAR Returns the year corresponding to a given date

MONTH Returns the month corresponding to a given date
DAY Returns the day corresponding to a given date

EOMONTH Returns the last day of the month, n months in the past or
future

NETWORKDAYS Calculates the number of working days between two dates

WORKDAY Takes a date and returns the nearest working day n days in
the future or past

TEXT Change the way a number appears by applying formatting

to it with format codes.

SUMPRODUCT Multiplies arrays together and returns the sum of products

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 EXCEL FUNCTIONS
Most Common Functions for Analysis

NPV Calculates the net present value of an investment by using a

discount rate and a series of cash outflows (-ve values) and
cash inflows (+ve values).

IRR Calculates the internal rate of return for a series of

cash flows that occur at regular intervals.
XIRR Calculates the internal rate of return for a series of cash
flows that occur at irregular intervals.

PMT Calculates the payment for a loan based on a constant

interest rate, the number of periods and the loan amount
IPMT Returns the interest payment for a given period for a loan,
or an investment based on periodic, constant payments and
a constant interest rate.
FV Calculates the future value of an investment based on a
constant interest rate.
PV Returns the present value of a loan or an investment, based
on a constant interest rate.
NPER Returns the number of periods for a loan, or an investment
based on periodic, constant payments and a constant
interest rate.

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 EXCEL FEATURES
EASY FEATURES FOR REPORTING

Goal Seek
With Goal Seek you can set the value of your formula result to a
specific number by changing an input value.

To access Goal Seek, go to Data / What-If-Analysis / Goal Seek

Custom Number Formatting

To show values in millions apply this number formatting:
#,##0,, If your regional settings uses a “.” for a decimal, replace the ,,
at the end with ..

Other variations you can use:

#,##0,, “m” or #,##0, “k” (for thousands)
#,##0,, “m”; - #,##0,, “m”; (to show values in millions and hide zeros)

Conditional Formatting
Conditional formatting can be applied whenever
• the number format or cell format needs to change depending on
a condition.
• Data bars or symbols are required based on a condition

You can apply multiple rules and even stop the conditional
formatting that’s applied once a condition is met.

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 TIPS FOR PREPARING REPORTS
PROPER DATA PREPARATION

Make Better Reports

Use Centre Across Selection (available from Format cells /
Alignment / in Horizontal options) instead of Merging cells where
possible

To add a space before values, use the “Indent” feature from

Home / Alignment Options

If a small space between column headers is desired, use “Single

Accounting” Underline option under Format cells / Font instead of
adding empty columns.

Use Excel Tables

Turn columnar data into an Excel Table (Insert / Table) to make it
easier to report on. Remember, each column needs a header. There
should be no extra columns or rows between data and no subtotals
in the middle.

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 EXCEL PIVOT TABLES
Turn numbers into valuable information

Benefits of Pivot Tables

• Quickly summarize data without writing formulas
• Automatically sort and group data
• Use slicers as dynamic visual filters

Checklist Before Creating Pivot Tables

✅ Each column has a header
✅ There are no blank columns in between
✅ No summations are embedded in the table

💪🏽 Best practice is to use an Excel table as source data. This way the
data range for the pivot is automatically extended as new data is
added to the bottom of the table. Don’t forget to refresh the Pivot
Table though.

Useful Tips When Working with PivotTables

💡 Double-click a value in the Pivot Table to drill down and view
details. Excel creates a new sheet including detailed line items.

💡 Change the summary formulas by double-clicking on the Pivot

Table header.

💡 Refresh the Pivot Table when source data is changed.

💡 Update the headers in your report as you need (you can add a
space before or after the name if you’d like the identical name
as the original column).

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