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

The concept of the time value of money indicates that:

A dollar received today is worth more than a dollar received in the future.

Interest rates have no effect on the value of money over time.

Money loses value only due to inflation.

Future cash flows are always equal in value to present cash flows.

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Verified step by step guidance

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

Recognize that interest rates play a significant role in the time value of money. Money can earn interest over time, which increases its future value. This is why interest rates affect the value of money over time.

Clarify that inflation is one factor that can reduce the purchasing power of money over time, but it is not the sole reason for the time value of money. The ability to invest and earn returns is the primary driver of TVM.

Understand that future cash flows are discounted to their present value using a discount rate, which accounts for interest rates and other factors. This is why future cash flows are not equal in value to present cash flows.

Apply the concept of TVM in financial decision-making, such as evaluating investments, loans, and other financial transactions, by calculating present value (PV) or future value (FV) using formulas like PV = FV / (1 + r)^n, where r is the interest rate and n is the number of periods.