TAILIEUCHUNG - Lecture Intermediate accounting - Chapter 6: Time value of money concepts

Time value of money concepts, specifically future value and present value, are essential in a variety of accounting situations. These concepts and the related computational procedures are the subjects of this chapter. Present values and future values of single amounts and present values and future values of annuities (series of equal periodic payments) are described separately but shown to be interrelated. | Time Value of Money Concepts Chapter 6 Chapter 6: Time Value of Money Concepts Time value of money concepts, specifically future value and present value, are essential in a variety of accounting situations. These concepts and the related computational procedures are the subjects of this chapter. Present values and future values of single amounts and present values and future values of annuities (series of equal periodic payments) are described separately but shown to be interrelated. Future Value of a Single Amount The future value of a single amount is the amount of money that a dollar will grow to at some point in the future. Assume we deposit $1,000 for three years that earns 6% interest compounded annually. $1, × = $1, and $1, × = $1, and $1, × = $1, The Future Value of a Single Amount (FV) is the amount of money that a dollar will grow to at some point in the future. Recall our previous example where we assume we deposit $1,000 for three years that earns 6% interest compounded annually. Future Value of a Single Amount Writing in a more efficient way, we can say . . . . $1, = $1,000 × []3 FV = PV × (1 + i)n Future Value Amount Invested at the Beginning of the Period Interest Rate Number of Compounding Periods Writing in a more efficient way, we can say the future value is $1,000 times to the 3rd power. In fact, the future value of any invested amount can be determined using the concise formula shown on the screen: The Present Value (PV) times 1 plus the interest rate raised to the power of the number of compounding periods. Using the Future Value of $1 Table, we find the factor for 6% and 3 periods is . So, we can solve our problem like this. . . FV = $1,000 × FV = $1, Future Value of a Single Amount Another way to find the future value is to use tables that contain the future value of $1 invested for various periods of time and at various interest rates. Table 1 in your

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• Intermediate accounting
• Lecture Intermediate accounting
• Financial Accounting
• Time value of money
• Compound interest
• Future value
• Accounting process
• Accounting equation
• Accounting processing cycle
• Stock issuance
• Estimating reserves
• Liquidating dividends
• Accounting changes
• Error corrections
• Accounting choices
• Theoretical structure
• Accrual accounting
• Financial accounting environment
• Accounting for leases
• Leasing environment
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• Special accounting problems
• Cash versus accrual accounting
• International standard setting
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• The challenges facing accounting
• Income taxes
• Accounting for income taxes
• Deferred tax liabilities
• Error analysis
• Accounting policy
• Accounting estimate
• Accounting policies
• Financial reporting
• Accounting information system
• Measurement issues
• Characteristics of accounting
• Capital allocation process