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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.



Explain the difference between simple and compound interest.

Compute the future value of a single amount.

Compute the present value of a single amount.

Solve for either the interest rate or the number of compounding periods when present value and future value of a single amount are known.

Explain the difference between an ordinary annuity and an annuity due situation.

Compute the future value of both an ordinary annuity and an annuity due.

Compute the present value of an ordinary annuity, an annuity due, and a deferred annuity.

Solve for unknown values in annuity situations involving present value.

Briefly describe how the concept of the time value of money is incorporated into the valuation of bonds, long-term leases, and pension obligations.





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