Discount rate accounting is the process of calculating the present value of future cash flows using a discount rate. A discount rate is a rate of return that is used to calculate the present value of a future cash flow. For example, if you expect to receive $100 in one year and the discount rate is 5%, then the present value of that cash flow is $95.24.
Discount rate accounting is an important tool for businesses because it allows them to make informed decisions about investments. By understanding the time value of money, businesses can make better decisions about when to invest and how much to invest. One key historical development in discount rate accounting is the development of the weighted average cost of capital (WACC). The WACC is a discount rate that is used to calculate the cost of capital for a business.