- Accountants use math problems such as addition and subtraction problems every day to arrive at totals for various management reports, reconciliations and tax reports. Accountants balance or reconcile bank statements in much the same way that individuals do, by adding deposits and interest, and subtracting checks written and bank fees. When completing income tax returns, income and expense statements, and cost analysis, accountants use addition and subtraction to add sources of income and subtract expenses to arrive at totals. When balancing the general ledger they make adjustments by adding and subtracting the various credits and debits for the month. Accountants keep department and company budgets current by subtracting department expenses from the allotted budget amount.
- In order to calculate overhead rates to apply to production pieces, accountants must divide the total expected overhead costs by the expected number of production pieces. Later, actual cost can be calculated for each production piece by dividing total actual cost by total actual production. To forecast expected cost for short-term or long-term management planning, accountants may multiply actual current costs and expenses by a percentage. The percentage used to forecast or estimate may be based on the expected rate of economic inflation. When accountants are dealing with suppliers or customers in other countries they must calculate exchange rates for currencies by using division or multiplication and the current rate of exchange. Profit margins may be stated as a percentage of sales, which requires dividing profit by revenue.
- Mathematical formulas help accountants, management personnel and lenders to compare income, expenses, profits and debts to other companies in similar industries. The formulas usually result in ratios or percentages that can be used to compare companies with industry standards easily even though a large difference may exist between the actual income and expenses of each company. Examples of some formulas used by accountants are Debt-to-equity ratio, Inventory turnover ratio, Operating margin, Earnings Per Share (EPS), P/E ratio and Working capital. EPS may be calculated using only outstanding shares of stock or stated using all possible shares of stock, including options. EPS is stated on the face of a company's income state because of its importance to stockholders and lenders. There are also formulas that accountants use to calculate depreciation on assets depending on the type of asset being depreciated, such as straight-line and modified accelerated cost recovery system.
