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Lecture Issues in financial accounting – Lecture 24: Accounting and the time value of money

Lecture 24 - Accounting and the time value of money. The contents of this chapter include all of the following: Compute interest and future values, compute present values, use a financial calculator to solve time value of money problems. | Accounting and the Time Value of Money PART II: Corporate Accounting Concepts and Issues Lecture 24 Identify accounting topics where the time value of money is relevant. Distinguish between simple and compound interest. Use appropriate compound interest tables. Identify variables fundamental to solving interest problems. Solve future and present value of 1 problems. Learning Objectives Future value of a single sum Present value of a single sum Solving for other unknowns Basic Time Value Concepts Single-Sum Problems Applications The nature of interest Simple interest Compound interest Fundamental variables Accounting and the Time Value of Money A relationship between time and money. A dollar received today is worth more than a dollar promised at some time in the future. Basic Time Value Concepts Time Value of Money LO 1 Identify accounting topics where the time value of money is relevant. Notes Leases Pensions and Other Postretirement Benefits Long-Term Assets Applications to Time . | Accounting and the Time Value of Money PART II: Corporate Accounting Concepts and Issues Lecture 24 Identify accounting topics where the time value of money is relevant. Distinguish between simple and compound interest. Use appropriate compound interest tables. Identify variables fundamental to solving interest problems. Solve future and present value of 1 problems. Learning Objectives Future value of a single sum Present value of a single sum Solving for other unknowns Basic Time Value Concepts Single-Sum Problems Applications The nature of interest Simple interest Compound interest Fundamental variables Accounting and the Time Value of Money A relationship between time and money. A dollar received today is worth more than a dollar promised at some time in the future. Basic Time Value Concepts Time Value of Money LO 1 Identify accounting topics where the time value of money is relevant. Notes Leases Pensions and Other Postretirement Benefits Long-Term Assets Applications to Time Value Concepts: Basic Time Value Concepts Shared-Based Compensation Business Combinations Disclosures Environmental Liabilities LO 1 Identify accounting topics where the time value of money is relevant. Payment for the use of money. Excess cash received or repaid over the amount borrowed (principal). The Nature of Interest Basic Time Value Concepts LO 1 Identify accounting topics where the time value of money is relevant. Interest computed on the principal only. LO 2 Distinguish between simple and compound interest. Basic Time Value Concepts Simple Interest Illustration: Barstow Electric Inc. borrows $10,000 for 3 years at a rate of 8% per year. Compute the total interest to be paid for the 1 year. Federal law requires the disclosure of interest rates on an annual basis. Interest = p x i x n = $10,000 x .08 x 1 = $800 Annual Interest Interest computed on the principal only. LO 2 Distinguish between simple and compound interest. Basic Time Value Concepts Simple Interest Illustration: .