Major Issues in Finance and Accounting - Essay Example

Contingent liability is the company’s potential debts that arise from past transactions. The companies can only verify the existence of this liability by the occurrence of the expected event that the business cannot control. This liability should not be incorporated into the balance sheet. An example of this liability includes the product warranty. If a company promises to replace goods with defects without charging the customers, the amount of the returned goods will be a contingent liability. Businesses need to distinguish the liabilities. This is because it will make it simple for investors and creditors to evaluate the risks the liabilities caused in the business in the future (Porter & Norton, 2011).

The Time Value of Money is the sum of interest a certain amount of money earns within a definite time. According to the concept of the time value of money, a certain amount of money one has today has more value than the same amount one expects to get in the future. This is because one can invest the money he has today and earn interests (Peavler, 2012). Accountants need to comprehend the current and future value concept. This is because it enables them to know the precise worth of the current business money. Furthermore, the concept enables accountants to know the value of the money the business is expecting (Lieuallen, 2008). The concept also enables them to differentiate between the values of savings opportunities that offer returns at varying durations. The accountants should also understand the concepts to advise the business on the amount of money the business should invest by calculating the values of the investments (Storer & Usinger, 2008).

The present and future value concepts apply to business decisions in various ways. For instance, it is applicable in the business decision regarding the amount of money the business should put in the saving accounts. The concepts can also help in calculating and reducing the opportunity costs in money usage (Franknlin, 2012). This enables the business to know whether to invest the money in saving accounts or using in other ways. For instance, a business can decide to use 200 dollars instead of putting the money in the saving accounts that would earn an interest of about 10 percent. This means that the business has forfeited the future benefits of saving money. Before making this decision, the business should ensure that using the money would result in greater opportunity costs compared to saving the money.