Term
What is the economic asset of an asset or liability? 

Definition


Term
What is referred to as the price of money? 

Definition
Interest  Those who borrow must pay it and those who lend will receive it 


Term
What is the time value of money? 

Definition
The difference between the value of a dollar today and the value of a dollar in the future 


Term
What are the 2 factors that influence the size of the time value of money? 

Definition
The price of money (interest) Length of the Time period 


Term
In an environment with inflation, what are the 2 reasons someone would prefer a dollar today over a dollar in the future? 

Definition
The rental price charged for using the dollar The erosion of purchasing power of the dollar in the future 


Term
What are the 2 perspectives from which the time value of money can be viewed? 

Definition
The future value of a sum of money received today The present value of a sum of money received in the future 


Term

Definition
FV = A(1+i)^n
A = Amount of money i = interest rate n = number of periods 


Term
What do the factors found on the tables represent? 

Definition
An individual interest factor (1+i) multiplied by itself for the number of periods 


Term
What is the definition of an annuity? 

Definition
A flow of cash payments of equal amounts paid at periodic intervals 


Term
What is the difference between an ordinary annuity and a due annuity? 

Definition
Ordinary/Arrears annuity is received at the end of a period while a due annuity is paid at the beginning of a period resulting in 1 period more of interest earned than an ordinary annuity 


Term
3 ways to view the computation of the future value of an ordinary annuity 

Definition
View each payment separately and compute its growth over each individual time period View each payment separately and use the table for a future value Use the table for a future value of an ordinary annuity with a certain interest rate and time 


Term
What is the relationship between the computation of the future value and present value 

Definition


Term
Present Value factor equation 

Definition


Term

Definition
The idea that a certain number of payments (over periods) is equal to a (smaller) lump sum today or (larger) lump sum after that certain period of time 


Term
What type of transactions utilizes the time value of money concept? 

Definition
Any transaction that can be broken down into periodic cash flows 


Term
What can present values usually not be used in financial accounting? 

Definition
The predictions management must make to apply present value are simply too subjective for financial statements that are to be used by those outside of the company 


Term
What is the name for a value that is allowed to measure PV? 

Definition


Term
What are common types of surrogate measures that can represent present value 

Definition
Historical cost Fair market value Replacement Cost Net realizable value 


Term
What are the 2 reasons accounting students must understand present value? 

Definition
1. Present value is the economic form of valuation and is therefore an important goal of accounting measurement 2. In the cases where present value is sufficiently objective, present value methods are used, and present values are actually incorporated into the financial statements 

