Formulas for Finance and Accounts

1. Formulas for Finance and Accounts
Accounts and Finance are two of the most important subjects of the management subjects. Both of
these subjects are interrelated with each other and at the same time they are different from each
other. While finance is the art and science of funds management, accounts is the art and science of
recording financial transactions over a period of time.
Finance and Accounts are both dependant on many tools, techniques, formulas and formats. One
important point, we must remember is that, not all companies follow the same rules and regulations
while maintaining their accounts and managing finance. While most companies are governed by the
respective Companies Laws or Acts in their respective countries, they still have freedom to choose
their own style of accounts maintenance and financial management.
Finance is mainly dependant on tools and formulas. These tools, techniques and formulas have been
developed over the years and they form a basis for today’s world of finance. These tools and
formulas determine the outcome of a financial investment made by a concern.
Today’s finance is more about analysis. There can be many ways to invest funds and it is the
responsibility of the financial officer to determine the best possible way for investing the funds of
shareholders. The investment thus made must bring about highest returns in comparison to others.
In order for this to happen, financial officers or managers have to depend upon certain tools,
techniques and formulas to determine the best possible investment in terms of returns.
Some of the formulas used in finance include

Future Value of Annuity
Future Value of Annuity = P [(1+ r)n – 1/r], where
P = Periodic payment, r = rate per period, n = Number of periods

Present Value of Annuity
Present Value of Annuity = P [1-(1+r)-n/r], where
P = Period Payment, r = rate per period, n = Number of periods

Future Value of Annuity Due
Future Value of Annuity Due = (1+r) × P [(1+r)n- 1/r], where
P = Period Payment, r = rate per period, n = Number of periods

Future Value of Growing Annuity
Future Value of Growing Annuity = P[(1+r)n – (1+g)n/r-g], where
P = First Payment, r = rate per period, g = growth rate, n = number of periods

Present Value of Growing Annuity

2. Present Value of Growing Annuity = [P/r-g] [1- (1+g/1+r)n], where
P = First Payment, r = rate per period, g = growth rate, n = number of periods
These are some of the formulas which are used in finance. We will discuss more about formulas in
finance in our coming blogs.
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