Inflation accounting

Accounting practices allowing for the effects of inflation.

Inflation Accounting

A method of accounting that includes inflation. In inflation accounting, one records price changes that affect the purchasing power of current assets and the value of the company's long-term assets and liabilities. This can provide a more accurate picture of a company's value. It is used to supplement a company's ordinary financial statements. It is less commonly called general price level accounting.

inflation accounting

Alteration of a firm's financial statements to account for changes in the purchasing power of money. With inflation accounting, gains and losses from holding monetary items during periods of changing prices are recognized. Likewise, long-term assets and liabilities are adjusted for changing price levels. Inflation accounting is used to supplement regular financial statements in order to illustrate how changing price levels can affect a firm. Also called general price level accounting.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

inflation accounting

adjustments to a firm's accounts to allow for the effects of INFLATION and arrive at a view of the real profitability of the firm. In a period of rising prices when the purchasing power of the money unit is declining, profit calculations based upon the HISTORIC COST of STOCKS and FIXED ASSETS are likely to overstate the real profit position. Various methods of allowing for the effects of inflation on the PROFIT-AND-LOSS ACCOUNT and the BALANCE SHEET have been tried.

One relatively simple method of inflation-adjusting a firm's accounting results is the current purchasing-power method. This uses a PRICE INDEX number to adjust the calculated profit figure from the profit-and-loss account, and to express it in real terms. A more detailed method is the current cost-accounting method. This produces a supplementary current-cost profit-and-loss account and balance sheet. In these current-cost accounts the deduction from revenue for COST OF SALES is based upon the REPLACEMENT COST of the goods sold (cost of sales adjustment); while DEPRECIATION is calculated on the replacement cost of fixed assets used and not on their historic cost (depreciation adjustment). See REVALUATION PROVISION, APPRECIATION, definition 1.

inflation accounting

any adjustments to a firm's accounts to allow for the effects of INFLATION and arrive at a view of the real profitability of the firm. In a period of rising prices when the purchasing power of the money unit is declining, profit calculations based upon the HISTORIC COST of STOCK and FIXED ASSETS are likely to overstate the real profit position in the PROFIT-AND-LOSS ACCOUNT and BALANCE SHEET.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005

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References in periodicals archive

***Do clients know about inflation accounting? Has the awareness increased recently?***In the past 3-5 years, have clients' incomes kept pace with inflation?***What inflation rate do you use while planning clients' finances?

Amar Pandit, CEO, My Financial Advisor***Although most clients know about inflation accounting, they focus typically on the headline inflation rate, which can be misleading.

The hidden devil in your investment

The profession was trying to devise a standard system for inflation accounting, yet no one had really succeeded.

90 years of CIMA: the institute celebrates its ninth decade in existence this year. We look at some of the key milestones passed on its way from 1919 to 2009

This included taxation in the rural sector, accrual taxation, taxation of life insurance, inflation accounting and the design of the GST.

Donald T Brash--Distinguished Fellow of the New Zealand Association of Economists

Chapter 4 explores selected international financial reporting and disclosure issues: inflation accounting, goodwill and other intangible assets, segment reporting, and social and environmental reporting.

In the next edition, I hope that the number and variety of exercises and cases will be increased, especially those requiring computations related to inflation accounting and currency exchange rate changes.

Shahrokh M. Saudagaran, International Accounting: a User Perspective

The text provides limited and terse discussion of such key, contemporary topics as inflation accounting. It should have focused on the many types of disclosures found in different countries' financial reports and possible approaches to respond to the challenges of analyzing diverse international financial statements.

International Accounting

Specifying just one definition of value in advance would be equally useless, as both the SEC and FASB found out in their competing approaches to inflation accounting.

Why fair value accounting can't work

Napier; "The Relationship between the Bookkeeping Systems of Pacioli and Schweicker," by Yashuhiko Kataoka; "Public Sector Accounting in Australia," by Robert Gibson;" Notice on the Meat Supply in Burgos, 1536-1537: Ledger of the Town Meat Purveyor," by Esteban Hernandez-Esteve; and "The Development of Walter Mahlberg's Inflation Accounting and Valuation Theories in the Light of Contemporary Critiques by Schmalenbach and Schmidt," by F.

Studies in accounting history: tradition and innovation for the twenty-first century

A review of the topics identifies several major items and controversial issues, such as pensions, foreign currency, inflation accounting, and cash flows.

Where would we be with it?

Postwar Economy,' Economic Forum, Summer 1986, for a useful left discussion of inflation accounting that could be applied to government debt.

How real is the federal deficit?

For instance, I've never agreed with inflation accounting. Let me have the numbers and I'll find the inflation rates and make the adjustments myself.

Should you worry about the future of the profession?