Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Net Sales

Financial Accounting

4. Merchandising Operations

Net Sales

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Which of the following is a limitation of the simple rate of return method when evaluating net sales performance?

It ignores the time value of money.

It is based solely on cash flows rather than accounting income.

It requires complex calculations involving present value factors.

It always results in a higher net sales figure.

Previous problemNext problem

Verified step by step guidance

Understand the concept of the simple rate of return method: This method evaluates the profitability of an investment by dividing the accounting income by the initial investment cost. It is straightforward but has limitations.

Identify the key limitation of the simple rate of return method: The method does not account for the time value of money, which is a fundamental principle in financial decision-making. The time value of money recognizes that a dollar today is worth more than a dollar in the future due to its earning potential.

Analyze the options provided: Evaluate each option to determine which one aligns with the limitation of the simple rate of return method. For example, the method does not involve complex calculations or present value factors, so these options can be eliminated.

Focus on the correct limitation: The simple rate of return method is based on accounting income rather than cash flows, but its primary limitation is that it ignores the time value of money. This makes it less reliable for long-term investment decisions.

Conclude the reasoning: The correct answer is 'It ignores the time value of money,' as this is the most significant drawback of the simple rate of return method when evaluating net sales performance.