inflation

[Phil Longstaff]

Stuart McGraw wrote:
> Phil Longstaff wrote:
>   
>> Charles Day wrote:
>>     
>>> On Fri, Aug 29, 2008 at 11:56 AM, Stuart McGraw <smcg4191 at frii.com> wrote:
>>>
>>>   
>>>       
>>>> Tommy Trussell <mailto:tommy.trussell at gmail.com> wrote:
>>>>     
>>>>         
>>>>> On 8/27/08, Stuart McGraw <smcg4191 at frii.com> wrote:
>>>>>       
>>>>>           
>>>>>> It appears that the USA and other places in the
>>>>>>  world may be headed for a period of high inflation.
>>>>>>  So I would like to ask,
>>>>>>
>>>>>>  * Are there any special standard practices for
>>>>>>   accounting during inflationary periods?
>>>>>>
>>>>>>  * Does Gnucash support these practices?
>>>>>>         
>>>>>>             
>>>>> I hope an actual accountant weighs in, but in my opinion accounting
>>>>> practices would not apply here because 1USD=1USD, or 1EUR=1EUR that is
>>>>> UNTIL you trade it for something else. The problems you run into is
>>>>> how to handle an exchange for one item to another as efficiently as
>>>>> possible. When you're talking stocks, you don't know the actual final
>>>>> price until everything "settles" after the trade. If you're trying to
>>>>> estimate your current net worth in terms of another unit, such as how
>>>>> much your stocks are worth in US Dollars, Australian Dollars or Euros,
>>>>> you're depending upon someone's estimate of what those items might
>>>>> have traded for, 15 minutes, 24 hours, or 30 days ago.
>>>>>       
>>>>>           
>>>> One area I expect inflation would affect is year-to-year financial
>>>> comparisons.  If inflation is 15% per year, a revenue report might
>>>> show a 15% increase when in fact there has been no real revenue
>>>> growth.  If the purpose of financial reports is to provide an accurate
>>>> picture of a business (or person's) financial condition (including
>>>> changes) then clearly it is failing to do so in an inflationary
>>>> environment. I was guessing that this is something accountants
>>>> may have developed some standard ways of adjusting for.  But I
>>>> can understand if this is beyond the scope of gnucash.
>>>>
>>>>     
>>>>         
>>> If all you want is to see inflation-adjusted reports, then it doesn't seem
>>> like it would be too hard for some enterprising person to add an option to
>>> specify a percentage and have each number in the report adjusted
>>> accordingly, i.e. for 6% inflation divide each number by 1.06. Someone just
>>> has to volunteer to do it. I suspect the main developers are too busy with
>>> what they already have on their plate. (I know I am.)
>>>
>>> If you don't want to try doing that work yourself, you could file an
>>> enhancement request (a bug report) in Bugzilla so the idea doesn't get
>>> lost.  http://bugzilla.gnome.org
>>>   
>>>       
>> This is now starting to move from an accounting app to a financial 
>> analysis app.  Accounting is supposed to capture and categorize 
>> transactions to provide an accurate financial record.  Accounting 
>> doesn't really take inflation into account because it is irrelevent.
>>     
>
> That seems a rather narrow definition in that I can't
> imagine an accounting application that did not provide
> at least basic summarizing of transactions.
>
> But regardless, should I understand your response as
> saying that accountants don't generally do anything
> special in times of high inflation?  (Does anyone
> from Zimbabwe read this list? :-)
>
>   
I'm saying that accountants don't but that financial analysts might.  I 
am not an accountant, but did work in an accounting office, setting up a 
financial system and producing reports.  For every accounting period, 
the values that were captured were actual values 
sent/transferred/received.  Reports produced were actual values.  The 
accounting system had no mechanisms for inflation adjustment.  Often, 
people would extract numbers and produce graphs (e.g. revenue in 
inflation-adjusted terms), but the accounting system didn't do that.

In a place with hyper-inflation, I would expect that I would record 
buying milk for $1 today and $100 tomorrow, because those are the real 
costs.  I would expect the accounting system to accurately reflect those 
values.  Any sort of inflation analysis would be one level up, using 
numbers drawn from the accounting system.

Phil