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Presenting Discounted Future Cash Receipts and Payments in Financial Statements

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  • Paul Rosenfield

Abstract

This article is about the commonly asserted view that present value, the discounted amount of future cash receipts and payments, is an attribute of assets and that it ideally should replace acquisition cost as the attribute of assets to present in financial statements. The view is based on faulty extrapolation from economics and the study of finance. Use of present value in connection with the preparation of financial statements does not contribute to performing their basic function, which is to report relevant real world conditions as they exist and existed and relevant financial effects of relevant real world events as they occurred. The view turns discounting into a magical process, it reverses the chronological order of cause and effect, and it unjustifiably substitutes the financial effects of supposed future events for the financial effects of historical events as the raw material of financial statements. The future does not yet exist and such financial events have not yet occurred; the present condition therefore can in no way depend on them. The discounted amount of future cash receipts and payments is not an attribute of assets and it should therefore not replace acquisition cost as the attribute of assets to present in financial statements.

Suggested Citation

  • Paul Rosenfield, 2003. "Presenting Discounted Future Cash Receipts and Payments in Financial Statements," Abacus, Accounting Foundation, University of Sydney, vol. 39(2), pages 233-249, June.
    • Handle: RePEc:bla:abacus:v:39:y:2003:i:2:p:233-249
    DOI: 10.1111/1467-6281.00128
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