Discount Rate
Accounting glossary · Understand, connect, apply
A discount rate is the rate used to convert future cash flows into present values. In investment appraisal it represents a required return appropriate to the cash-flow definition, timing and risk.
Example
Discounting a 1,080 year-end receipt at 8% gives a present value of 1,000. Using a higher positive rate would produce a lower present value for that receipt.
Remember the difference
Do not use a convenient loan rate automatically for every project. Keep nominal cash flows with nominal rates, real cash flows with real rates, and the rate period consistent with the timing.
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Published 4 November 2026. Prepared with AI assistance; examples are fictional and simplified for learning.
Examples are simplified for learning. Where a term depends on US law, IFRS, US GAAP or a historical rule, check the context explained above and the requirements relevant to your course.
Study references: OpenStax financial accounting and managerial accounting. For reporting requirements, consult the applicable IFRS Standards or FASB guidance. US tax terms should be checked against the relevant tax-year IRS instructions.
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