pptchapter6

pptchapter6 - Learning Objectives Accounting & The Time...

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Slide 4-1 UCSB, Anderson Accounting & The Time Value of Money Chapter 6 Slide 4-2 UCSB, Anderson Learning Objectives z Identify accounting topics where time value of money is relevant; z Distinguish between simple and compound interest; z Learn how to use compound interest tables (NOTE we will also cover using excel worksheets & formulas and financial calculators); z Identify variables fundamental to solving interest problems; z Solve future and present value of 1 problems; z Solve future and present value of ordinary and annuity due problems; z Solve PV problems related to deferred annuities and bonds; z Apply the expected cash flow approach to present value measurement. Slide 4-3 UCSB, Anderson Key Terminology z Present Value: Today’s value of money to be received in the future; z Future Value: Value of an amount known today which will be received/ paid in the future. z Compound: Interest earning interest. Compounding period should be stated, generally monthly z Annuity: Payments over a period of time in equal amounts. z Payment Interval: Frequency of annuity pmts. z Ordinary annuity: payments made at the end of the payment interval z Annuity due: payments made at the beginning of the payment interval Slide 4-4 UCSB, Anderson Time-Value of Money basics z $1 today is worth more than $1 tomorrow; z GAAP seeks to present the “economic substance over legal form” of a transaction. Consequently, PV becomes relevant. Glaring example:
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pptchapter6 - Learning Objectives Accounting & The Time...

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