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 best describes the time value of money?

A dollar received today is worth more than a dollar received in the future due to its earning potential.

Future cash flows are always discounted at the same rate as past cash flows.

Money loses value over time only because of inflation.

The value of money remains constant regardless of when it is received.

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Verified step by step guidance

Understand the concept of the time value of money (TVM): The time value of money is a fundamental financial principle that states a dollar received today is worth more than a dollar received in the future. This is because money has the potential to earn returns (e.g., through investments or interest).

Analyze the first statement: 'A dollar received today is worth more than a dollar received in the future due to its earning potential.' This aligns with the TVM principle, as it highlights the earning potential of money over time.

Evaluate the second statement: 'Future cash flows are always discounted at the same rate as past cash flows.' This is incorrect because discount rates can vary depending on factors such as risk, inflation, and market conditions.

Evaluate the third statement: 'Money loses value over time only because of inflation.' This is partially true, but it oversimplifies the concept. While inflation does erode purchasing power, the time value of money also considers the opportunity cost of not investing or earning returns on money.

Evaluate the fourth statement: 'The value of money remains constant regardless of when it is received.' This is incorrect because it contradicts the TVM principle, which states that the value of money changes over time due to earning potential and other factors.