The Average Accounting Return (AAR) Rule Can Be Best Stated

question 401

Multiple Choice

The average accounting return (AAR) rule can be best stated as:

• A) An investment is acceptable if its AAR is less than a target AAR.
• B) An investment is acceptable if its AAR exceeds a target AAR.
• C) An investment is acceptable if its AAR exceeds the firm's return on equity (ROE).
• D) An investment is acceptable if its AAR is less than the firm's return on assets (ROA).

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Definitions:

Debits

Entries on the left-hand side of an accounting ledger, indicating increases in assets or expenses or decreases in liabilities or equity.

Transactions

Economic activities or events that affect the financial position of a company and can be quantified in monetary terms.

Journal Entries

Written records of all the financial transactions of a business, which are then used to prepare financial statements.

Debits Equals Credits

A fundamental principle of accounting stating that for every transaction, the total debits must equal the total credits in a double-entry bookkeeping system.