In which ways is math used in accounting?

Answer 1

Accounting deals with Math all time. Primarily only addition, substraction, multiplication, and division is used in accounting as follows:

Addition: Summing accounts for inclusion in financial statements (i.e. many different cash accounts are summed to equal "cash" in balance sheet), adding items in inventory to determine accurate counts, adding all outstanding checks (written but not cashed) to reconcile a bank statement, etc.

Subtraction: Determine net income and various margins by substracting expenses from revenues, calculating variances between actuals and budgets.

Multiplication: Tax rates (e.g. FICA, FUTA, etc) by gross pay to calculated and remit correct taxes, extrapolating period results (i.e. 6 months sales x 2) to estimate annualized results, calculating present value of cash flows using given factors, calculate sales tax on sales, etc.

Division: Calculate various ratios such as asset turnover, operating margins, etc.

Addition and subtraction is used most often and today is nearly 100% automated with computerized applications. Multiplication and Division is used "primarily" for analysis of financial results (with some exceptions noted above).

Response provided by CPA/CMA and math minor on 7/13/08.