Overview
Inflation accounting is a crucial aspect of financial reporting that adjusts financial statements to reflect the impact of inflation. This adjustment is necessary to provide stakeholders with an accurate view of a company's financial health, as inflation can distort the value of assets and liabiliti...
Key Terms
Example: If inflation is 2%, a $100 item will cost $102 next year.
Example: A building bought for $1 million is recorded at that value, regardless of current market value.
Example: If a building's replacement cost is $1.5 million, it is recorded at that value in inflation accounting.
Example: Balance sheets and income statements are key financial statements.
Example: The Consumer Price Index (CPI) is a common general price index.
Example: The price index for gasoline tracks changes in gasoline prices specifically.