Course Outline
Join PRO

What is annualizing?

Author:
Harold Averkamp, CPA, MBA

Definition of Annualizing

Annualizing means taking a partial year amount and converting it to a full year amount. We will use several examples to illustrate how this works.

Examples of Annualizing

  • A person having a monthly salary of $4,000 is earning an annualized salary of $48,000 ($4,000 per month multiplied times 12 months in a year).
  • A person with a semimonthly salary of $3,000 is earning an annualized salary of $72,000 ($3,000 multiplied times 24 semimonthly pay periods).
  • A company having to pay an interest charge of 1.5% per month on its unpaid bills is experiencing an annualized interest rate of 18% (1.5% per month multiplied times 12 months).
  • A vendor’s invoice having an early payment discount of “1/10, net 30” means that 1% can be saved if the amount owed is remitted within 10 days instead of the required 30 days. This 1% savings for paying 20 days early can be annualized by multiplying both the 1% and the 20 days by “18” to arrive at an annualized rate of approximately 18%.
  • A vendor’s invoice having an early payment discount of “2/10, net 30” means that 2% can be saved if the amount is remitted within 10 days instead of the required 30 days. This 2% savings for paying 20 days early can be annualized by multiplying both the 2% and the 20 days by “18” to arrive at the annualized rate of approximately 36%. An annualized interest rate of 36% for a “riskless investment” of the amount owed is an amazing opportunity (as is an annualized rate of 18%). It also indicates that a company without sufficient cash to pay within the early payment discount period will experience a huge opportunity cost.
Join PRO to Track Progress
Must-Watch Video

Advance Your Accounting and Bookkeeping Career

  • Perform better at your job
  • Get hired for a new position
  • Understand your small business
  • Pass your accounting class
Watch the Video

Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials

Read all 2,645 reviews

Features

PRO

PRO Plus

Features
Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Word Scrambles
Crosswords
Bookkeeping Video Training
Financial Statements Video Training
Flashcards
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Business Forms
All PDF Files
Progress Tracking
Earn Badges and Points
Certificate - Debits and Credits
Certificate - Adjusting Entries
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Payroll Accounting

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

Certificates of
Achievement

Certificates of Achievement

We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping:

  • Debits and Credits
  • Adjusting Entries
  • Financial Statements
  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Working Capital and Liquidity
  • Financial Ratios
  • Bank Reconciliation
  • Payroll Accounting
Badges and Points
  • Work towards and earn 30 badges
  • Earn points as you work towards completing our course
View PRO Plus Features
Course Outline
Take the Tour Join Pro Upgrade to Pro Plus