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What is inflation accounting?

This problem gives definations and a short description of inflation accounting.

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What is inflation accounting?

1. Accounting practices allowing for the effects of inflation
2. Showing the effects of inflation on financial statements, an FASB requirement for large companies
3. inflation accounting means adjusting standard accounting procedures for the fact that inflation lowers the purchasing power of money.

In the last three years, inflation accounting has been adopted as a supplementary financial statement in the United States and the United Kingdom. This comes after more than 50 years of debate about methods of adjusting financial accounts for inflation. In a way, this is a sad commentary on the state of inflation in the western world. Inflation has attained a degree of permanence and consequently inflation accounting is becoming a standard feature of corporate reporting. The debate about methods continues but now theory is being confronted with actual data. Therefore we should shift attention from methods to applications and test the utility of this kind of accounting. Eventually the application of this data to the real life problems of investment and business ...

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