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Inflation Accounting

Inflation Accounting

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Published by manchana

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Published by: manchana on Nov 16, 2009
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07/28/2014

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Topic Covered
Inflation Accounting
 
Concept of Inflation Accounting:
Inflation normally refers to the increasing trend ingeneral price level. In other words, it is a state inwhich the purchasing power of money goes down.Inflation Accounting is a system of accountingwhich shows the effect of changing costs andprices on affairs of a business unit during anaccounting year.While the cost in the traditional accounting refers tothe historical cost, in inflation accounting itrepresents the cost that prevails at the time of reporting.
 
Why Inflation Accounting?
In the traditional accounting, assets are shown athistorical cost, year after year.During the inflationary period, historical cost baseddepreciation would be highly insufficient to replacethe existing assets at current cost. Moreover currentrevenues for the period are not properly matchedwith the current cost of operation.Thus, the problems created by price changes in thehistorical cost based accounts necessitated somemethod to take care of inflation into the accountingsystem.

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Nasr1234 added this note
Thanks alot
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Madhu Kumar added this note
thanks ....quite easy to understand ...
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Prithi Agarwal added this note
thnks a lottt...!!:))
arman1230 added this note
thanks alot.....u made dis so easy for me.... may God bless u

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