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 process of restating future cash flows in today's dollars is known as:

Compounding

Accrual

Amortization

Discounting

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Verified step by step guidance

Understand the concept of 'Discounting': Discounting is the process of determining the present value of future cash flows by applying a discount rate. It helps in evaluating the worth of money to be received in the future in today's terms.

Identify the formula for present value (PV): The formula for discounting future cash flows is PV = FV / (1 + r)^n, where FV is the future value, r is the discount rate, and n is the number of periods.

Recognize the difference between discounting and other terms: Compounding refers to the process of growing a present value into a future value, accrual involves recognizing revenues and expenses when they are incurred, and amortization is the gradual reduction of a debt or asset value over time.

Apply the concept of discounting in financial decision-making: Discounting is used in various financial analyses, such as net present value (NPV) calculations, investment appraisals, and determining the value of bonds or loans.

Relate discounting to the time value of money principle: The time value of money states that a dollar today is worth more than a dollar in the future due to its earning potential. Discounting quantifies this principle by adjusting future cash flows to their present value.