Finance Formulas / July 18, 2018 / Natalia Atkins
Present value is the discounted sum of future cash flows each future cash flow is multiplied by a carefully selected number less than one, before being added together. The multiplication factor accounts for the way the value of money is discounted over time. The time-based value of money captures the intuition that everyone would prefer to get paid sooner rather than later but would prefer to pay later rather than sooner. The multiplication factors depend on the discount rate chosen (10% per year as an example) and the length of time before each cash flow occurs. For example, money received ten years from now must be discounted more than money received five years in the future.
Accounts receivable is the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers. Said another way, account receivable are amounts of money owed by customers to another entity for goods or services delivered or used on credit but not yet paid for by clients.
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