Microsoft Office Tutorials and References
In Depth Information
Understanding How Excel Handles Money
amount, the interest rate, the period (how often you make a payment), and
the length of the loan. Then, the functions return an answer such as your
payment amount. In this chapter, I show you how to use these functions to turn
your finance figures into meaningful results.
The principal is the amount being borrowed. The interest rate is the annual
percentage that the lender charges for lending the money. Your total
payments will equal the principal plus the sum of all interest charges.
Understanding How Excel
Handles Money
Excel is a lot more than a simple adding machine. It has great tools for
working with money values and a number of ways of presenting the amounts.
For example, Excel makes it easy for you to make sure that your financial
amounts are displayed with two decimal points. You can even work with
different currencies from around the world.
Going with the cash flow
Excel works with money on a cash flow basis. In other words, money
amounts are treated either as a cash flow in (money you receive) or a cash
flow out (money you pay out). Yes, there always seems to be too many of the
latter and not enough of the former — but hey, you can’t blame Excel for that!
Excel represents cash flows in as positive numbers and cash flows out as
negative numbers. For example, when you calculate the payments on a loan,
the situation is as follows:
The amount of the loan is entered as a positive value because this is the
money you’ll receive from the bank or whoever is giving you the loan.
The monthly payment that Excel calculates is a negative value because
this is money that you’ll be paying out.
Formatting for currency
One of Excel’s shining strengths is accepting, manipulating, and reporting on
monetary data. As such, Excel provides robust formatting for numeric data,
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