Which of the following are common methods for calculating the time value of money?

• A. LIFO and FIFO inventory methods
• B. Double-entry bookkeeping
• C. Straight-line depreciation
• D. Present Value (PV) and Future Value (FV) calculations

Answer: (D)

Verified step by step guidance

1. Understand the concept of the time value of money, which states that a dollar today is worth more than a dollar in the future due to its earning potential.
2. Learn the two common methods for calculating the time value of money: Present Value (PV) and Future Value (FV). These methods help determine the value of money at different points in time.
3. Present Value (PV) calculations involve discounting future cash flows to their value today using a discount rate. The formula is: $\mathrm{PV}=\frac{\mathrm{FV}}{{\mathrm{(1+r)}}^{-n}}$, where FV is the future value, r is the discount rate, and n is the number of periods.
4. Future Value (FV) calculations involve compounding present money to its value in the future using an interest rate. The formula is: $\mathrm{FV}=\mathrm{PV}\times {\mathrm{(1+r)}}^n$, where PV is the present value, r is the interest rate, and n is the number of periods.
5. Recognize that methods like LIFO and FIFO inventory methods, double-entry bookkeeping, and straight-line depreciation are unrelated to the time value of money. They are accounting techniques used for inventory valuation, recording transactions, and allocating asset costs, respectively.