If future cash flows are not discounted the effect in the financial statements is to:
A) report amounts of cash outflows that are the same but occur over different time periods as the same amount.
B) report net cash flows at their future value rather than their present value.
C) understate the amount of the present obligation.
D) report net cash flows at their future value rather than their present value and understate the amount of the present obligation.

Question

Quizplus · Accepted Answer

Discounting future cash flows is essential for accurately representing their present value. If cash flows are not discounted, it means that cash outflows occurring at different times are treated as if they have the same value, regardless of the timing. This approach ignores the time value of money, which states that a dollar today is worth more than a dollar in the future due to its potential earning capacity.

If Future Cash Flows Are Not Discounted the Effect in the Financial