Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

10. Time Value of Money

Time Value of Money Equations

Financial Accounting

10. Time Value of Money

Time Value of Money Equations

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Multiple Choice

A dollar paid (or received) in the future is:

not considered in time value of money calculations

worth less than a dollar paid (or received) today

worth the same as a dollar paid (or received) today

worth more than a dollar paid (or received) today

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Verified step by step guidance

Understand the concept of the time value of money (TVM), which states that a dollar today is worth more than a dollar in the future due to its earning potential and inflation. This is a foundational principle in financial accounting.

Recognize that the time value of money is influenced by factors such as interest rates, inflation, and opportunity cost. These factors reduce the value of money received or paid in the future compared to money received or paid today.

Learn that future cash flows are discounted to their present value using a discount rate, which reflects the cost of capital or required rate of return. This process helps compare the value of money across different time periods.

Apply the formula for present value (PV) to calculate the worth of future cash flows: \( PV = \frac{FV}{(1 + r)^n} \), where \( FV \) is the future value, \( r \) is the discount rate, and \( n \) is the number of periods.

Conclude that a dollar paid or received in the future is worth less than a dollar paid or received today due to the discounting effect and the time value of money principle.