The total amount of interest earned or paid in a year on any financial products, loans etc. is called as the effective annual interest rate. The effective annual interest rate is also known as an effective interest rate.
So, how to calculate effective interest rate? Here is the formula: r = (1+i/n) n -1
r= effective interest rate n = no. of periods i= annual interest rate
Effective annual interest rate calculates while considering compound rates instead of static interest rates.
Cash receipts journal is a special type of ledger which records details of only cash receipts. This ledger reflects in the journal under the category “Cash Sales”. Debit and credit both columns need to be recorded simultaneously. In debit side cash should be debited and in credit side sales need to be entered.
Break-even point is a point where a company faces a win-win situation; Means Company’s all debts are paid and gain no income. There is loss or profit at this point. Break-even point is a term used in financial analysis. A company can have a lower or higher break-even point.
Accounting rate of return also called as Average rate return. Accounting rate return calculates the amount of profit company/entity incurred from the money invested. Accounting rate of return never considers the time value of money.
The formula to calculate accounting rate of return is: Average return during period / Average investment
Average Investment = Book value at the beginning of 1st year + Book value at the end of useful life /2
Average return during period = Profit after tax/ Life of investment
Accelerated depreciation is a method to calculate the book value of a fixed asset over the years. In this method, the relative asset incurred higher expenses than last remaining years, unlike straight-line method.
There are two methods two calculate accelerated depreciation i.e. double declining balance method and Sum of the years’ digits method.
Double declining balance method formula
Annual Depreciation Expenses = Net Book Value x 2/Useful life in years
Sum of the years’ digits method formula
Depreciation Expense = Remaining useful life of asset / Sum of the years digits x Depreciable Cost