Average accounting return

Okay kiddo, have you ever had a piggy bank where you save your allowance or money you get as a gift? Now imagine you have your own toy store and you need to figure out if your store is making any money.

To figure it out, you need to know how much money your store made during the year and how much money it cost to run the store during that same year. This is called profit - making more money than you spend.

The average accounting return is a way to figure out how much profit your store made compared to how much money you invested in it. It’s like figuring out how much money you made by checking how much money you put into your piggy bank at the beginning and how much you have now.

To do this, you take the average of the profits your store made during a certain number of years, say five years, and divide it by the amount of money you originally invested in it, say $100.

So for example, if your toy store made a profit of $10 each year, then the average accounting return would be 10% because you made 10% profit on your $100 investment.

This helps you see if your store is doing well over time and if it’s worth keeping open. It’s like checking your piggy bank every once in a while to make sure you’re still saving money and not spending more than you have.