Week 5 Reflection Essays

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Week Five Reflection ACC/421 Week Five Reflection The concept of time value of money is accounting is the relationship between time and money (Kieso, Wygandt, & Warfield, 2007). The common expression is that money today is worth more than the assurance of money received tomorrow. The reason for this saying is the investment opportunities and borrowing options. Understanding how to compare present and future values of money and learning how to use the different time values of money is important in accounting and the different users of accounting. Importance of Time Values of Money There is a big importance when it concerns the time values of money because the …show more content…

A company can use the present value concept to determine the value of a property today that is expected to earn the minimum of the projected future cash flow or the amount of money that needs to be invested today to reach a desired future sum. Investors who are interested in acquiring businesses would use the present value of money concept. Probably the main example of how the present value of money is applied in accounting is: a company wants to accumulate $100,000 in five years and they know there is an 8% interest that is compounded annually. A company would take that information and the present value of money concept to determine the amount of money they need to invest today. Applications of Future Values of Money Computing the future value of money allows accountants to calculate compound interest. The future value of money is used to determine the rate of return at a specific time at a particular interest rate. Companies use it to make financial decisions involving money held for deposit, comparing interest applied to loans or receivables, or investments. Accountants can calculate future values using a single sum today or with periodic payment. Examples of periodic payments include rents or any payment that requires constant payments generally of the same amount. Accountants can also use future value to determine the amount of money, interest, and periodic payments required

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