inflation

[Derrick Hudson]

I am not an accountant, but here is what I learned in Accounting 101
at the local community college.

On Mon, Sep 01, 2008 at 12:44:20PM -0600, Stuart McGraw wrote:
| Phil Longstaff wrote:

| > 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.

The accounting reports are:
    Balance Sheet
    Income Statement
    Owner's Equity
 
(note that "Owner's Equity" will be slightly different for
corporations ("Retained Earnings", to the best of my knowledge) and
individuals ("Net Worth"))

| But regardless, should I understand your response as
| saying that accountants don't generally do anything
| special in times of high inflation?

Correct.  Accounting assumes that inflation is low enough and money
flows fast enough for the different to be negligible in the short
term.  All accounting reports are short term -- usually annually.

Accounting does deal with depreciation, but that is all based on
somewhat arbitrary mathmatical models, not on the economy.  Only when
a capital asset is sold/scrapped is the difference between the
"depreciated value" and the "market value" determined and at that time
it is recorded as a gain or loss.


After the accountant tracks all of the records and prepares the
reports (Balance Sheet and Income Statement) the data can be analyzed
from a business perspective in order to make decisions.  The state of
the economy, market conditions and inflation are handled at this
level.

That being said, I do find GnuCash's additional reports, such as the
bar and pie charts, to be valueable even though they aren't strictly
part of accounting.

-Derrick

-- 
Contrary to popular belief, Unix is user friendly.
It just happens to be selective about who it makes friends with.
                                               -- Dave Parnas
 
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