Q12RQ - Horngren'S Financial And Managerial Accounting

Question

 What is the accounting rate of return?

Step-by-Step Solution

Answer

Answer

ARR is calculated using accrual accounting rather than net cash inflows.

Step 1: Meaning Rate of return

A profit or any sum earned after making some investments is known as the rate of return. Current and original values are the amounts required to compute the rate of return.

Step 2: Explaining the accounting rate of return

ARR is a technique that depicts the profitability of an investment. It shows the relation between the company's average annual operating incomes earned using the average amount invested or the initial investment.