Inflation Accounting

What is 'Inflation Accounting'

Inflation accounting is special accounting techniques, which can be used during periods of high inflation. Inflation accounting requires statements to be adjusted according to price indexes, rather than rely solely on a cost accounting basis. Companies operating in countries experiencing hyperinflation, may be required to update their statements periodically, in order to make them relevant to current economic and financial conditions.

BREAKING DOWN 'Inflation Accounting'

Most developed countries have relatively stable rates of inflation. For countries with high rates of inflation, examining the books is difficult, because historical information is less likely to be relevant as prices increase rapidly.

RELATED TERMS
  1. Inflation

    The rate at which the general level of prices for goods and services ...
  2. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise ...
  3. Account Statement

    A periodic summary of account activity with a beginning date ...
  4. Inflation Trade

    A method of investing that seeks to profit from an overall increase ...
  5. Inflation Protected

    The types of investments that provide protection against inflation ...
  6. Base Effect

    The consequence of abnormally high or low levels of inflation ...
Related Articles
  1. Markets

    The Money Market: A Look Back

    Learn how past inflationary periods can predict future real rates of return for cash investments.
  2. Managing Wealth

    Inflation's Impact On Stock Returns

    When stocks are divided into growth and value categories, the evidence is clear that value stocks perform better in periods of high inflation, and growth stocks perform better during periods ...
  3. Markets

    A Primer On Inflation

    Inflation has a negative connotation, but is it all bad or does it offer some tangible benefits?
  4. Markets

    Coping With Inflation Risk

    Inflation is less dramatic than a crash, but it can be more devastating to your portfolio.
  5. Markets

    How Inflation Affects Your Cash Savings

    Prices tend to rise over time and this inflation can cut into the value of your savings. Here are some ways you can manage the situation.
  6. Markets

    Understanding Hyperinflation

    Hyperinflation is an economic term describing rapid, uncontrolled price increases.
  7. Markets

    Worst Hyperinflations in History

    Here are the three worst episodes of hyperinflation in history. Each makes Venezuela's current inflation crisis seem modest in comparison.
  8. Markets

    Should You Worry About the U.S Inflation rate?

    Understand how inflation is measured, how U.S. inflation compares to other countries, and if investors should be concerned with rising inflation.
  9. Markets

    What You Should Know About Inflation

    Find out how this figure relates to your investment portfolio.
  10. Markets

    Macroeconomics: Inflation

    By Stephen Simpson Inflation is a key concept in macroeconomics, and a major concern for government policymakers, companies, workers and investors. Inflation refers to a broad increase in prices ...
RELATED FAQS
  1. What's the difference between hyperinflation and inflation?

    Learn the difference between inflation, which can be a normal part of economic fluctuation, and potentially economy-killing ... Read Answer >>
  2. What are the key differences between stagflation and hyperinflation?

    Learn the differences between stagflation and hyperinflation and the types of monetary policies used to take corrective action ... Read Answer >>
  3. What does the current cost of living compare to 20 years ago?

    Find out how inflation has affected the dollar since 1994, and how the cost of living has changed above and beyond what can ... Read Answer >>
  4. Why are P/E ratios generally higher during times of low inflation?

    Inflation affects equity prices in several ways. Most importantly, investors are willing to pay less for a certain level ... Read Answer >>
  5. How does inflation affect fixed-income investments?

    Learn about the ways inflation can harm fixed-income investments. Find out how to monitor the impact of inflation using common ... Read Answer >>
  6. How can inflation be good for the economy?

    Find out why some economists and public policy makers believe that inflation is a good, or even necessary, phenomenon to ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

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

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

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

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center