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Inadequacies of the traditional historic cost accounting method in times of changing price levels and the alternative methods. - Essay Example
Finance & Accounting
Pages 3 (753 words)
Title: Inadequacies of Traditional Historic Cost Accounting Method in Times of Changing Price Levels and Alternative Methods Introduction: Accounting and financial calculations using traditional historic cost accounting are based on changes in the market, considering the market news and conditions to be unbiased and objective in nature…
Inadequacies of Traditional Historic Cost Accounting: Based on the traditional historic cost accounting method, financial accounting of any business is done considering the earnings and costs that are associated only with the internal of the organization. Decisions are taken based on such measures that exclude economic transactional information without having any market value. With this technique only those external financial factors are taken into considerations that have some effects on the overall financial outcome of the business. Thus other social, economic or environmental factors are not considered in this method of accounting (Bailey, Harte and Sugden 2002). For any business organization, accounting method needs to realize the changes in prices in the market and be feasible in the process of accounting accordingly. The inadequacies with the traditional historic cost accounting method arise since the accountants used to measure transactions related to finance in terms of monetary unit. The method proved to be unstable as the monetary value keeps changing with conditions in the market. With changes in the value of the rupee or dollar or any other unit, financial statements would reflect distorted amounts. ...
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