Prorated
Adjusted for a specific time period
What is Prorated?
In accounting and finance, prorated means adjusted for a specific time period. For example, if an employee is due a salary of $80,000 per year, and they join the company on July 1, their prorated salary for that year would be $40,000.
How to Prorate a Number
Let’s look at an example. Susan is supposed to earn $30 per hour, paid to the nearest minute. She works 47 minutes. What is her prorated compensation?
To calculate the answer, follow the steps below:
- Take her hourly rate of $30 and divide it by 60 to find her rate per minute.
- Multiple her rate per minute by 47 to arrive at the answer:
= ($30 / 60) x 47 = $23.50
Download CFI’s free Prorate Calculator.
When is Prorating Used?
There are many examples of times when a prorated number is required. Let’s review a list of the most common situations.
Examples include:
- When an employee worked for less than a year
- When an employee worked for less than a month
- When a contractor worked for less than an hour
- When a monthly subscription began mid-month
- When a utility company bills for less than a full month of service
- When a tenant moves into a rental space mid-month
While there are lots of situations that require prorating numbers, there are also many instances where numbers are not prorated. One of the most common is that of payment of stock dividends. Shareholders are paid a dividend based on the date of record when they became shareholders, not based on how long they have owned their shares. Everyone who is a shareholder as of the date of record receives the same dividend amount per share when they are paid.
Using Prorated in a Conversation
Here is an example of a conversation between an Analyst (A) and a Vice President (VP), talking about numbers in a financial model.
VP: Did you update the model to include the new office lease figures?
A: Yes, I increased the office rent number to reflect the higher rate starting in July.
VP: Did you prorate it?
A: Yes, I prorated it based on a move-in date of July 23.
VP: Okay great, thanks!
Additional Resources
CFI is the official global provider of the Financial Modeling and Valuation Analyst (FMVA)® designation, a leading financial analyst certification program. To continue learning and advancing your career, the following additional CFI resources will be helpful:
Additional Resources
CFI is a global provider of financial modeling courses and of the FMVA Certification. CFI’s mission is to help all professionals improve their technical skills. If you are a student or looking for a career change, the CFI website has many free resources to help you jumpstart your Career in Finance. If you are seeking to improve your technical skills, check out some of our most popular courses. Below are some additional resources for you to further explore:
The Financial Modeling Certification
Analyst Certification FMVA® Program
CFI is a global provider of financial modeling courses and of the FMVA Certification. CFI’s mission is to help all professionals improve their technical skills. If you are a student or looking for a career change, the CFI website has many free resources to help you jumpstart your Career in Finance. If you are seeking to improve your technical skills, check out some of our most popular courses. Below are some additional resources for you to further explore:
The Financial Modeling Certification
Below is a break down of subject weightings in the FMVA® financial analyst program. As you can see there is a heavy focus on financial modeling, finance, Excel, business valuation, budgeting/forecasting, PowerPoint presentations, accounting and business strategy.
A well rounded financial analyst possesses all of the above skills!
Additional Questions & Answers
CFI is the global institution behind the financial modeling and valuation analyst FMVA® Designation. CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path.
In order to become a great financial analyst, here are some more questions and answers for you to discover:
- What is Financial Modeling?
- How Do You Build a DCF Model?
- What is Sensitivity Analysis?
- How Do You Value a Business?
Accounting Crash Courses
CFI is a global provider of financial modeling courses and of the FMVA Certification. CFI’s mission is to help all professionals improve their technical skills. If you are a student or looking for a career change, the CFI website has many free resources to help you jumpstart your Career in Finance. If you are seeking to improve your technical skills, check out some of our most popular courses. Below are some additional resources for you to further explore:
The Financial Modeling Certification
Boost your confidence and master accounting skills effortlessly with CFI’s expert-led courses! Choose CFI for unparalleled industry expertise and hands-on learning that prepares you for real-world success.
