Constant Dollar Accounting

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.

RELATED TERMS
  1. Constant Dollar

    An adjusted value of currency used to compare dollar values from ...
  2. Nonmonetary Assets

    Assets in which the right to receive a fixed or determinable ...
  3. Adjusted Net Asset Method

    A business valuation procedure used in acquisition accounting ...
  4. Monetary Item

    An asset or liability carrying a value in dollars that will not ...
  5. Constant Currencies

    An exchange rate that eliminates the effects of exchange rate ...
  6. Nonmonetary Transaction

    Transactions that do not result in a transfer of funds between ...
Related Articles
  1. Financial Advisor

    Financial Accounting

    Financial accounting is the process of gathering, recording, summarizing and reporting financial data relating to a business. The ultimate goal is to accurately report the financial picture and ...
  2. Investing

    Accounting Basics: Financial Statements

    By Bob Schneider Financial statements present the results of operations and the financial position of the company. Four statements are commonly prepared by publicly-traded companies: balance ...
  3. Markets

    What You Should Know About Inflation

    Find out how this figure relates to your investment portfolio.
  4. Investing

    12 Things You Need To Know About Financial Statements

    Discover how to keep score of companies to increase your chances of choosing a winner.
  5. Managing Wealth

    Breaking Down The Balance Sheet

    Knowing what the company's financial statements mean will help you to analyze your investments.
  6. Retirement

    Why The Consumer Price Index Is Controversial

    Find out why economists are torn about how to calculate inflation.
  7. Retirement

    Economic Indicators: Consumer Price Index (CPI)

    By Ryan Barnes Release Date: Monthly, approximately mid-month Release Time: 8:30am Eastern Standard Time Coverage: Previous ...
  8. Personal Finance

    How To Use Price Adjustments To Get The Best Deals

    We take a look at 6 top retailers' price adjustment policies, and tell you how to get your money's worth.
  9. Investing

    Reviewing Liabilities On The Balance Sheet

    As an experienced or new analyst, liabilities tell a deep story of how a company finances, plans and accounts for money it will need to pay at a future date.
  10. Investing

    Understanding Common Size Financial Statements

    A common size financial statement displays all items on a balance sheet as a percentage of a common base figure.
RELATED FAQS
  1. Will the consumer price index (CPI) be updated or revised in the future?

    Learn about the consumer price index (CPI) and understand how its purpose and calculation make it necessary to continually ... Read Answer >>
  2. How is market to market accounting different than historical cost accounting?

    Learn about historical cost accounting and mark to market accounting, the difference between and the limitations of the two ... Read Answer >>
  3. What types of companies benefit from reporting results utilizing constant currencies ...

    Understand constant currency figures, and explore some of the reasons why a company is likely to benefit from reporting using ... Read Answer >>
  4. Where did market to market (MTM) accounting come from?

    Find out how mark to market accounting originated and how it has been forced to evolve to eliminate subjectivity from financial ... Read Answer >>
  5. When should I use seasonally adjusted data from the consumer price index (CPI)?

    Learn what seasonally adjusted data is, how it is determined and when it should be used to evaluate the information gathered ... Read Answer >>
  6. Does the consumer price index (CPI) correlate with the change in price of goods and ...

    See why the consumer price index is a questionable proxy for inflation, and why it is unlikely to represent experiences with ... Read Answer >>
Hot Definitions
  1. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  2. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  3. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  4. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  5. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
  6. Real Rate Of Return

    The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other ...
Trading Center