A Clear Understanding of the Steps in the Accounting Cycle

question 64

Multiple Choice

A clear understanding of the steps in the accounting cycle is likely to be useful in:

• A)Financial audits.
• B)Investigative audits.
• C)Both financial audits and investigative audits.
• D)Neither financial audits nor investigative audits.

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Definitions:

Accounting Rate of Return

A financial ratio that measures the expected profitability of an investment, calculated by dividing the average annual profit by the initial investment cost.

Initial Investment

The amount of money used to start a project, purchase assets, or invest in securities, which is used as a basis for evaluating the potential profitability of the investment.

Discounting

A financial technique that calculates the present value of future cash flows by applying a discount rate.

Net Present Value

A financial metric that calculates the difference between the present value of cash inflows and the present value of cash outflows over a period of time.