Marriott Alumni Magazine

Spring Summer 1977 Exchange

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ACCOUNTING FOR INFLATION by K. Fred Skousen "Dad, how much did a 20-cent candy bar cost when you were a kid?'' "I just filled the car up. Eleven bucks for twenty gallons of gas. I remember when it was 25 cents a gallon." "Our office mailing costs are 400 percent higher than a decade ago-after adjusting for increases in volume." Inflation has hit every one of us. An important question confronting the business community, and accountants in particular, is how to account for inflation. Two Assumptions It is generally assumed that accounting is a service activity-to provide quantitative information useful in decision making. Traditionally this information has come from transactions between different parties in an exchange of some kind. For example, services by an employee are traded for wages from the employer; consumers exchange money for a product or service. The base of measuring the exchange values of these transactions has been the dollar, and two assumptions have been made: (1) the exchange price at date of acquisition is an objective and valid measurement of the economic impact of the transaction and, therefore, should be used in recording accounting information; and (2) the dollar will remain stable; it does not change

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