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

Which of the following is true for calculating the future value of multiple cash flows?

Each cash flow must be compounded to the future date individually before summing the amounts.

Only the first cash flow needs to be compounded; the rest are added at face value.

The future value is calculated by discounting all cash flows to the present and then summing them.

All cash flows can be simply added together without considering the time period.

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Verified step by step guidance

Understand the concept of future value: Future value is the value of a cash flow or series of cash flows at a specific point in the future, calculated by applying compound interest over time.

Recognize the importance of time periods: Each cash flow occurs at a different point in time, so the time value of money must be considered. Cash flows occurring earlier or later will have different future values due to compounding.

Apply the formula for future value of a single cash flow: The future value of a cash flow is calculated using the formula:

{FV}_{n} = {PV}_{n} × (1 + r)

^t, where

{PV}_{n}

is the present value of the cash flow,

r

is the interest rate, and

t

is the time period until the future date.

Compound each cash flow individually: Since each cash flow occurs at a different time, calculate the future value of each cash flow separately using the formula above. This ensures that the time value of money is accurately accounted for.

Sum the future values: After calculating the future value of each individual cash flow, add them together to determine the total future value of all cash flows.