Question

1) Do you understand that accounting departments spend a great deal of time at the end of the month and even more on end of year. why would this be true?

2) Time Value of Money is a complex concept. Why do we worry about it in Accounting.

Answer 1

Ans: Accounting departments spend a great deal of time at the end of the month and even more on end of year because of passing of closing entries so as to present true and fair view to monthly and annual Financial Statement. Closing entry means the expenditure and income pertaining to the period is recognised in the period only irrespective of the fact when the funds are realised or being paid.

Another reason for hectic month end and year end because most organisation close their books immedialtely after month end, so if any entry is left then reopening the period require specific approval, so most activities are to be completed with month end.

Ans 2:

Time value of money is important in accounting because it helps to distinguish between real profit and book profit. Because the company may earn profit on an investment in future but due to inflation and other factors it might not be the real profit. So in accounts the time value has to be considered so as to provide a true and fair view to investors.