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

Money is considered to have a time value because:

A dollar today can be invested to earn interest, making it worth more in the future.

Money loses all value if not spent immediately.

The value of money remains constant over time regardless of inflation.

Future cash flows are always equal to present cash flows.

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Verified step by step guidance

Understand the concept of the time value of money: Money is considered to have a time value because its purchasing power or earning potential changes over time. A dollar today can be invested to earn interest, making it worth more in the future.

Recognize the principle of interest: When money is invested, it earns interest over time, which increases its future value. This is a key reason why money today is more valuable than the same amount in the future.

Consider inflation: Inflation reduces the purchasing power of money over time. This means that the value of money does not remain constant, and future cash flows are not equal to present cash flows.

Evaluate the incorrect statements: Money does not lose all value if not spent immediately, and future cash flows are not always equal to present cash flows due to factors like interest and inflation.

Conclude the correct reasoning: The correct answer is that a dollar today can be invested to earn interest, making it worth more in the future. This aligns with the fundamental concept of the time value of money.