![]() The insurance company divides 200 by 365 and multiples this figure by $500 to get $273.97, representing the amount the policyholder owes. The insurance company only requires the policyholder to pay the policy for 200 days out of the year because the policyholder wants to switch plans. Here’s how you might calculate pro rata for insurance premiums:Ī home insurance policy that covers one year costs $500. Related: How To Calculate Dividend Yield: Guide and Examples For insurance premiums The total number of shares is 100,000, with each share awarding the same payout. Here’s an example of calculating the pro rata for dividend payments:Ī company plans to pay out $500,000 in cash dividends for its shares. Here are some examples of pro rata calculations: For dividend payments Related: What Is Payroll Accounting (Definition and Examples) Pro rata calculation example This amount represents the cost of rent per day, so you can multiply it by 10 days of rent to get the same $161 amount. ![]() Using the same example, you would divide $500 by January’s 31 days to get about $16.13. The result is about $161, which represents the amount the tenant owes for 10 days of January rent.Īlternatively, you could calculate pro rata distribution by dividing the quantity of related items by the maximum quantity of total items and multiplying this number by the “true” number. In this example, you would multiply 32% by $500. To calculate the pro rata distribution, multiply the pro rata share by the quantity of related items. Related: Accounting: Definition and Specializations 3. This percentage represents the portion the tenant owes of the total monthly rent. Using the same example, you would divide 10 by 31 to get roughly 32%. You can calculate the pro rata share by dividing the number of “true” items by the maximum quantity of total items. The quantity of related items is $500, representing a normal monthly payment for January. The maximum quantity of total items is 31, as a typical monthly rent payment for January would be for 31 days. ![]() Since the tenant only pays a portion of the monthly rent, the number of “true” items is 10. ![]() When determining the pro rata, the formula typically requires you to gather the following three data points:Ĭonsider an example where a tenant pays for 10 days of rent in January. You can follow the steps below to use the formula effectively: 1. Pro rata distribution = pro rata share x quantity of related items Here’s how to calculate pro rata using a formula: Related: Why Is Accounting Important? Plus 4 Types How to calculate pro rata Planning a project budget that incorporates expenses for different departments and needs Setting revenue quotas for individual geographical locations Paying out dividends or cash payments to shareholders of an organizationĭiscerning the total amount of an insurance policy premium to be paid that was implemented in a partial insurance termĪllocating the right portion of a yearly interest rate within a time frame that is less than one yearĬalculating a part-time employee’s salary to what they would make if they were a full-time employeeĭividing expenses among a certain number of people for a set periodĪdjusting loan payments to be paid monthly rather than annually Related: What Is a Prorated Salary? When to use pro rataĪ few of the most common instances when a person or company may use pro rata include: In this instance, it determines the percentage a part-time worker would make if they worked full-time. Businesses may also use pro rata when calculating the salary of a part-time employee. Businesses use pro rata to ensure they accurately and fairly analyze and distribute financial figures. Pro rata is practical for business purposes regarding expenses, revenue allocation, capital and other financial scenarios that involve giving or receiving money from one individual or entity. While the term can indicate that all parts are equal, it can also mean parts are unequal as long as each part is proportionate in regard to distribution. Pro rata translates to “in proportion” and refers to the distribution of an amount in equivalent ratios. Pro rata, or “prorated,” is a Latin word used to describe a value’s proportional allocation or assignment.
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