Simple Accounting Calculations and Methods
This post covers basic mathematical operations in accounting and bookkeeping, including addition, subtraction, multiplication, division, percentage, decimal numbers, rounding, calculator usage, the BODMAS rule, and typical computational mistakes. It aims to assist in understanding the very basics.
Addition is the process of combining two or more numbers. The answer is called the sum.
Subtraction is the process of taking a number away from another number or finding the difference between two numbers
Multiplication is the process of adding a repeating number multiple times.
Division is the opposite of multiplication. It’s the process of dividing a number equally by another number.
A percentage is a number expressed as a fraction of 100. It is mostly denoted with the percentage sign “%”. Depending on the situation and its use, the percentage can be expressed in a). the decimal number simply by dividing it by 100 or b). fraction by putting the number over 100.
To find the percentage of a number, multiply the number by the percentage and divide it by 100. Example: find 5% of 20.
20 x 5 / 100 = 1
The 5% of 20 is 1.
You will always come across decimal numbers while working in finance due to the Australian dollar being a decimal system. There are 100 cents in a dollar.
Always remember to write in two decimal places even if the second decimal is 0. Write $20.40 instead of $20.4.
While working with decimal numbers, you will sometimes get numbers that have several decimal places. it is important to round correctly when converting these numbers into Australian dollars.
The rules are simple:
decimal numbers at the value of 5 or more are rounded up
decimal numbers at a value of less than 5 are rounded down
Example 1: 57.627 is rounded up to 57.63
Example 2: 63.724 is rounded down to 63.73
Note: Since the lowest denomination of the Australian dollar in cash is the $0.05 coin, round the amount to the nearest amount that can be paid using cash/coins.
Using a Calculator and Estimate
You can use a calculator to help with your calculations. However, always double-check your calculations and use estimates as a check for accuracy. For example, the result of 51.3% of 170 should be a little over 85(since 85 is 50% of 170). If the difference between your estimate and the result is too big, there is most likely a problem in your calculations. 51.3% of 170 is 87.21.
BODMAS stands for Brackets, Order, Division, Multiplication, Addition, and Subtraction. This rule outlines the order in which the operation will be carried out while solving an equation.
Example: 42 + (5 x 7) 4 – 8 / 2 =?
First, solve the bracket(s): 42 + (35) 4 – 8 / 2 or: 42 + 35 x 4 – 8 / 2
Secondly, solve the order(s): 16 + 35 x 4 – 8 / 2
Thirdly, solve the division(s): 16 + 35 x 4 – 4
Then, solve the multiplication(s): 16 + 140 – 4
Afterwards, solve the addition(s): 166 – 4
And finally, solve the subtraction (2): 162
Note: Other versions of this rule are: BOMDAS, BOMDSA, and BODMSA. They are all correct but not as memorable as BODMAS.
Typical Computational Mistakes
Below are some of the most common computational mistakes.
- Wrong use of operators
- Wrong order of operations
- Wrong input of data or figures
- Mistake in rounding
- Use of the wrong formula
In conclusion, this post has covered the basics of mathematical operations in accounting and bookkeeping. It is important to remember to use the BODMAS rule when solving equations, double-check calculations, use estimates as a check for accuracy, and be aware of typical computational mistakes.