Present value methods are often used with receivables and liabilities:
A) With payment schedules in excess of one year.
B) With payment schedules of less than one year.
C) When fair values can be easily determined.
D) When asset are sold in the middle of the accounting cycle.

Question

Quizplus · Accepted Answer

Present value methods, such as discounted cash flow analysis or net present value analysis, are usually employed when payment schedules are more than one year. This is because the value of future cash flows depends significantly on the time value of money, and discounting those cash flows to their present value helps in determining their true worth at the current point in time. For payment schedules of less than one year, using present value methods may not yield a substantial difference in value, so simpler accounting methods such as accrual accounting could be used.

Present Value Methods Are Often Used with Receivables and Liabilities