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.

  1. Constant Dollar

    An adjusted value of currency used to compare dollar values from ...
  2. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket ...
  3. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
  4. Accrual Accounting

    Accrual accounting is an accounting method that measures the ...
  5. Price-Weighted Index

    A stock index in which each stock influences the index in proportion ...
  6. Accounting Change

    A change in accounting principles, accounting estimates, or the ...
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  1. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  2. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  3. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  4. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>
  5. How can working capital affect a company's finances?

    Working capital, or total current assets minus total current liabilities, can affect a company's longer-term investment effectiveness ... Read Full Answer >>
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    Working capital is used to cover all of a company's short-term expenses, including inventory, payments on short-term debt ... Read Full Answer >>

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