ACCOUNTING FOR BUSINESS INCOME UNDER INFLATION: CURRENT ISSUES AND VIEWS IN THE UNITED STATES*

Solomon Fabricant

Review of Income and Wealth, 1978, vol. 24, issue 1, 1-24

Abstract: To adjust business accounting for inflation, one current proposal is to convert all dollar figures in existing financial statements to units of fixed general purchasing power. A widely offered alternative is to retain the dollar units but replace the historical‐cost figures by current values. The two alternatives would yield very different results. After reviewing these and variant proposals, the analysis concentrates on certain major issues: the unit of measurement; the treatment of capital gains; the concept of capital maintenance; and the treatment of changes in the purchasing power of debt. Current value accounting would not correct for changes in the general price level and would involve far more difficult problems of concept and measurement than general purchasing power accounting. The latter is therefore preferable.

Date: 1978
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