Question
Currently, financial reporting does not take into account changes in prices, either at the general level or at the specific level. Many analysts believe that
Currently, financial reporting does not take into account changes in prices, either at the general level or at the specific level. Many analysts believe that not taking price changes into account distorts the meaningfulness of financial reports. How do changing prices affect financial reports?
SELECT ALL THAT ARE CORRECT
a. | Changes in the general level of prices in an economy (as measured by the prices of a broad basket of goods and services) affect the purchasing power of the monetary unit (for example, the U.S. dollar). | |
b. | During periods of inflation (deflation), the measuring unit loses (gains) purchasing power. | |
c. | Changes in the specific prices of individual assets and liabilities (for example, inventories, fixed assets) do not affect the measurement of revenues and expenses on the income statement, and the valuation of assets and liabilities on the balance sheet. | |
d. | Because the measuring unit does not reflect a constant amount of purchasing power over time, accounting measurements of assets, liabilities, revenues, and expenses made with this measuring unit are not comparable. |
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