Managing finances can be quite challenging. One of the most important aspects of managing finances is dealing with money, and one needs to be familiar with the different ways in which money can be represented. In this article, we will discuss the different ways in which one can represent money, specifically nominal money, and how to deal with it in Microsoft Excel.
Understanding Nominal Money
Nominal money is the face value of a currency note or a coin. It is the amount that is printed or inscribed on it. For example, a US $20 bill or a Euro €50 note has a nominal value of $20 and €50 respectively. It is used as a means of exchange for goods and services.
However, nominal money does not account for inflation, which is the increase in the general level of prices of goods and services in an economy. For example, 10 years ago, one could buy a lot more with $20 than what they can buy today. Hence, nominal money is not a reliable indication of the purchasing power of money.
Representing Nominal Money in Excel
It is important to represent nominal money accurately in Microsoft Excel, especially when working with financial data. Here are some ways in which you can represent nominal money in Excel:
1. Using the Currency Format
The currency format in Excel automatically adds a default currency symbol to the cell that you format. To use the currency format, follow these steps:
- Select the cell or range of cells that you want to format.
- Click on the “Home” tab and select “Currency” from the “Number Format” dropdown menu.
- Select the desired currency symbol from the dropdown menu. If the currency symbol that you want to use is not available, you can type it in manually.
- Select the number of decimal places that you want to display. For example, if you want to display the currency in whole dollars, select “0” decimal places.
- Click “OK” to apply the formatting.
Once you have applied the currency format, the numbers will display with the specified currency symbol and decimal places.
2. Using Custom Number Formats
You can also use custom number formats in Excel to represent nominal money. Here’s how:
- Select the cell or range of cells that you want to format.
- Click on the “Home” tab and select “More Number Formats” from the “Number Format” dropdown menu.
- In the “Format Cells” dialog box, select “Custom” from the left-hand side menu.
- Type in the custom number format code in the “Type” field. The custom format code consists of up to four sections, separated by semicolons, that define the positive numbers, negative numbers, zeros, and text values respectively. For example, the custom format code “#,##0.00” would display numbers with a thousands separator and two decimal places.
- Click “OK” to apply the formatting.
Custom number formats offer a lot of flexibility and allow you to represent nominal money in a variety of ways. For example, you can use custom number formats to display negative numbers in red or to display large numbers in scientific notation.
Dealing with Nominal Money in Excel
Now that we know how to represent nominal money in Excel, let’s discuss how to deal with it. Here are some common tasks that involve nominal money in Excel:
1. Adding and Subtracting Nominal Money
To add or subtract nominal money in Excel, you can simply use the “+” or “-” operators. For example, if you want to add $20 and $30, you can enter “=20+30” in a cell and press “Enter”. The result will be displayed in the cell.
However, if you are dealing with large amounts of nominal money, it is a good practice to use the SUM function. The SUM function adds up a range of cells and returns the result. Here’s how to use the SUM function:
- Select the cell where you want to display the result.
- Type “=SUM(” followed by the range of cells that you want to add up. For example, “=SUM(A1:A10)” would add up the values in cells A1 through A10.
- Close the parenthesis and press “Enter”. The result will be displayed in the cell.
2. Multiplying and Dividing Nominal Money
To multiply or divide nominal money in Excel, you can use the “*” or “/” operators respectively. For example, if you want to calculate 10% of $50, you can enter “=0.1*50” in a cell and press “Enter”. The result will be displayed in the cell.
Again, if you are dealing with large amounts of nominal money, it is advisable to use the PRODUCT or QUOTIENT functions respectively. The PRODUCT function multiplies a range of cells and returns the result, while the QUOTIENT function divides one number by another and returns the quotient. Here’s how to use these functions:
- Select the cell where you want to display the result.
- Type “=PRODUCT(” or “=QUOTIENT(” followed by the range of cells or numbers that you want to multiply or divide.
- Close the parenthesis and press “Enter”. The result will be displayed in the cell.
FAQs
1. Why is nominal money not a reliable indication of the purchasing power of money?
Nominal money does not account for inflation, which is the increase in the general level of prices of goods and services in an economy. Due to inflation, the purchasing power of money decreases over time, which means that the same amount of nominal money can buy fewer goods and services than it could in the past. Hence, nominal money is not a reliable indication of the purchasing power of money.
2. Can Excel handle real money, which takes inflation into account?
Yes, Excel can handle real money, which takes inflation into account. To do this, you need to use the appropriate inflation index or factor for the specific time period that you are concerned with. You can find these indices or factors online or in financial databases. You can then use these indices or factors to adjust nominal money for inflation and calculate real money. This is important for analyzing financial data over time and for making comparisons between different time periods.
Conclusion
Representing and dealing with nominal money is an important skill for anyone who deals with finances. Microsoft Excel provides various tools and functions that make it easy to represent nominal money accurately and perform calculations with it. By understanding these tools and functions, you can work more efficiently with financial data and gain insights into your finances.
