What is inflationary accounting?

Inflation accounting is an accounting practice in which the values ​​are regulated by inflation. This is done to provide a more accurate picture of the financial situation. In some countries, this type of accounting is necessary for companies that publish public financial reports if there are some size and smaller companies can also use inflation accounting. This technique requires some careful accounting work because it is possible to mash the financial image of inflation accounting.

currencies experience inflation of value. For example, the specified amount in a given currency in 1990 has a different value in 2000. Inflation occurs during the year and may wax and decrease depending on a number of economic factors. If financial reporting has been provided at that time, it can provide an exact picture. For example, the company could say that in 2003 it earned one million currency units and two million monetary units in 2013.urface, it may seem that the income of the companyHe folded, but because of inflation it may not really be.

with inflation accounting will take the actual value and adjust it for inflation. This practice can also be known as price level accounting and can be very revealing. For example, the accountant prepares a statement in 2008, showing that the company earned $ 100,000 (USD) in a specific division in 1990, could use inflation accounting to show that it would be $ 16277 in 2008.

Inflation adjustments are made with the help of tools such as consumer prices index and other indicators published by government agencies. Accountants are generally obliged to show their mathematics to inflation Acquisition so that someone reviews accounts that could see which index was used to calculate inflation values. To reduces the risk of using different indices to make the financial report more favorable by massaging numbers.

Inflation accounting is not only for large corporations. Some households also consider it useful to use inflation accounting in creating budgets and thinking about job opportunities. Inflation affects consumer prices very quickly and can be useful for people to think about past income and expenditure in terms of inflation. For example, someone who earns the same salary for 10 years actually earns less because of inflation every year.