1 Learning objectives After studying the material in this chapter you will be able to do the following: LO1 Discuss how cash is accounted for in financial.

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Presentation transcript:

1 Learning objectives After studying the material in this chapter you will be able to do the following: LO1 Discuss how cash is accounted for in financial statements LO2Describe the impact on cash reporting of inflation and deflation, and foreign currencies. LO3Recognize the importance of cash management and internal controls over cash. LO4 Explain the concept of the time value of money and its relevance to accounting, and do some basic time value of money calculations. Copyright © 2013 McGraw-Hill Ryerson Limited

2 Is a Dollar a Dollar? Time value of money A dollar today > A dollar tomorrow ▫Compounding interest ▫Effects of inflation ▫Effects of foreign currency fluctuations ▫Effects of uncertainty of receipt LO2 Copyright © 2013 McGraw-Hill Ryerson Limited

3 Changes in Purchasing Power Inflation reduces purchasing power of cash Deflation increases purchasing power of cash, but far less common Nominal dollar – no adjustments made for changes in purchasing power IFRS – requires adjustments for entities in countries with high levels of inflation LO2 Copyright © 2013 McGraw-Hill Ryerson Limited

4 Changing Prices of Foreign Currencies Unit of measure –state financial statement amounts in a single currency Exchange rate - price to buy one unit of currency, stated in terms of another currency If the exchange rate changes, the number of dollars reported changes LO2 Copyright © 2013 McGraw-Hill Ryerson Limited