Constant Purchasing Power Accounting

Constant purchasing power accounting is a way of looking at a company's finances to make sure that the value of money remains the same, even if prices go up or down. For example, if a company had $1,000 one year and then the price of everything went up ten percent, it would be difficult to compare the company's finances the next year when it had $1,100. With constant purchasing power accounting, the company's finances could still be compared since their $1,100 is treated as if it was the same as $1,000 from the previous year. Basically, constant purchasing power accounting helps us to measure how much a company's money is worth, no matter what changes to prices are happening.