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 value of money is always changing. Users have to take into the consideration of time values of money when making any financial decision that involves us investing money into something and expecting something in return for instance when we look at retirement. We pay into 401 k plans and such for so long in hopes that there will be enough money put away for us to retire and live comfortably. The time and value play a major part in any financial decisions because at one time the value can be extremely high and at another time the value can be very little. For instance the American dollar value used to be high and now it is low because of factors like the economy failing and companies moving overseas.
Applications of Present Values of Money
The present value of money refers to today’s value of some amount of money, which is expected to be available one or more years in the future. In accounting the present value of money concept is used to describe the amount of money that needs to be invested now to produce a known future value. There is a formula used to calculate the present value of money and that formula is: PV=FV (Inc., 2013).
PV= Present value
FV= Future value...