Because this computation attempts to calculate the average book value of an investment by simply averaging the initial and liquidation values.
The accounting rate of return stockholders investments is measured by?
outline four limitation of the accounting rate of return method of appraising new investment.
Average anual profit = average operating cash flow - depreciation
return on equity
Return on capital employed means an accounting ratio used in finance, valuation, and accounting. Not to be confused with return on equity, it is similar to return on assets yet takes into account sources of financing.
The AAR is good capital budgeting tool because managers can compare it to objective benchmarks. Yet one limitation is that ARR uses profit rather than cashflows, and it does not account for the time value of money (TVM)For more information on the accounting rate of return (AAR) please visit: http://www.drtaccounting.com/2008/03/calculate-average-accounting-return.html
The accounting entry for sales return under warranty is the accrued warranty liability. This entry is written under warranty expense.
Yes. It is just another term used for in accounting.
Internal rate of return (IRR) is a discounted method used for Capital budgeting decisions (investment etc) while accounting rate of retun is a measure for calculating return for a one off payment. IRR is actually the discount rate that equates the Present value of the cash flows to the NPV of the project (investment) while accounting rate of return just gives the actual rate of return. Habib topu1910@gmail.com
Return Inwards in accounting means SALES that was returned in your business by your customers maybe because there's something wrong or the customer is not satisfied with the product. SALES is your revenue and is credit in nature. RETURN INWARDS / SALES RETURN is the opposite of SALES, therefore, it's an expense and is debit in nature.
Yes. If you mean by financial accounting, the accounting that calculates the cost of capital to the business and compare it to current, expected, and historic rates of return. Suppose a company is making 12% return; but borrowing money by using the owner's credit card at 22%? Be good to know that.