Although not an accounting principle, the time of value of money is a prevalent concept in accounting. The measurement basis for certain items relies on this concept. The present value of an item is crucial in decision making and is an important consideration in that item's valuation in the financial statements. Understanding the time value of money is an indispensable requirement for every accountant.
Certain items lose value over time because of many reasons. In other instances, decisions made today will add benefits and value to the company in the future. The financial statements should reflect future loses or gains if these are significant because of certain variables occurring over time. If not considered, future risks and benefits may not be anticipated properly and provided for.
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