DEFINITION of 'Constant Dollar Accounting'

A method of accounting that measures financial statements in figures adjusted for inflation. Constant dollar accounting requires the conversion of historical non-monetary assets and liabilities to current dollar values. The conversion is generally done by using a price index, commonly the consumer price index (CPI). Monetary items, such as cash and cash equivalent items, are not adjusted.

BREAKING DOWN 'Constant Dollar Accounting'

Adjusting financial statements using constant dollar accounting allows analysts and investors to better compare companies that purchased assets in different years. However, one weakness of constant dollar accounting is that it relies on a general price index, such as the CPI, that may not accurately reflect the true price changes of their assets.

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