The accounting rate of return is a measure of profitability computed by dividing the average annual cash flows from an asset by the average amount invested in the asset.

Question

Quizplus · Accepted Answer

The definition given in the statement is of the simple rate of return, while the accounting rate of return is calculated by dividing the average annual net income or profit by the average investment in the asset.

The Accounting Rate of Return Is a Measure of Profitability