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

3. Accrual Accounting Concepts

Introduction to Adjusting Journal Entries and Prepaid Expenses

Financial Accounting

3. Accrual Accounting Concepts

Introduction to Adjusting Journal Entries and Prepaid Expenses

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Multiple Choice

Which is an advantage of using residual income (RI) over return on investment (ROI)?

RI encourages managers to make investments that are profitable for the company, even if they reduce the division's percentage return.

RI focuses solely on percentage returns rather than absolute dollar amounts.

RI is easier to compare across divisions of different sizes than ROI.

RI ignores the cost of capital when evaluating performance.

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Verified step by step guidance

Understand the concept of Residual Income (RI): RI is a measure of performance that calculates the net income generated by a division after deducting the cost of capital. It is expressed in absolute dollar terms rather than percentages.

Understand the concept of Return on Investment (ROI): ROI is a percentage-based measure that evaluates the efficiency of an investment by comparing the net income to the invested capital.

Compare RI and ROI: RI encourages managers to focus on absolute profitability, which can lead to investments that are beneficial for the company overall, even if they reduce the division's percentage return. ROI, on the other hand, focuses on percentage returns, which might discourage managers from pursuing investments with lower percentage returns but higher absolute profits.

Evaluate the advantages of RI: RI is particularly useful for encouraging managers to make decisions that align with the company's overall profitability goals, as it accounts for the cost of capital and focuses on absolute dollar amounts rather than percentages.

Conclude the comparison: The key advantage of RI over ROI is that RI motivates managers to make investments that are profitable for the company, even if they reduce the division's percentage return, as it prioritizes absolute profitability over percentage-based metrics.