Inflation Accounting

You run a company and are getting ready to prepare your financial statements. Unfortunately, things in the general economy aren't doing so good. Your country is currently experiencing severe hyperinflation. People are running around with wheelbarrows of cash trying to buy a hotdog for lunch.

The unstable nature of the currency makes preparing your financial statements tricky. Inflation accounting is a set of techniques to deal with these situations. The field consists of guidelines for preparing inflation-adjusted results.

In real life, the situation usually comes up when a multinational corporation has dealings in a country suffering heavy inflation or deflation. GAAP guidelines explain when using inflation accounting is justified and how to apply the strictures.