Word Watch · Term 29 of 30 · 0:51
Proration
ProductionIllustrated Click2CE lesson; AI-assisted production with Sarah narration
In brief
Proration allocates a cost between parties for the relevant periods, using the contract and stated calculation conventions.
Example
A $300 cost over 30 days is $10 per day. If 10 days are assigned to the seller, that share is $100.
TranscriptRead along, or select a timestamp to jump there
- Proration divides an expense or income item between parties for
- their respective periods of responsibility.
- Start with a simple stated example:
- a three hundred dollar charge for a thirty-day period.
- The problem assigns ten days to the seller and twenty
- days to the buyer.
- Three hundred divided by thirty is ten dollars per day.
- The seller's share is one hundred dollars; the buyer's share
- is two hundred dollars.
- The allocation is only part of the closing entry.
- Whether the item was paid ahead or remains unpaid affects
- the debit and credit.
- Use the stated day-count basis and closing-day convention instead of
- assuming one universal method.
- Quick check:
- in this example, what is the seller's ten-day share?
- One hundred dollars.
- Ten days times ten dollars per day.
