Abstract Magnitude of the post-war price increases and the forecasts by competent economists of the likelihood of a continued secular price rise have had considerable influence on published views of the accountants. Accounting literature during the past eighteen months has increasingly reflected the viewpoint that accounting procedures should drop the assumption of a stable monetary unit and should recognize changes in the purchasing power of money. When the price level rises, what happens to the value of real assets and the purchasing power of money. The appropriate answer to this may be found by a consideration of the fundamental nature of money. One of the functions of money is to provide a numeraire, a common measure of values. The real value of a specific commodity is not defined by its absolute price, but by its price in relation to the prices of all other goods. If price levels change, reinforcing influences are set in motion. Money itself is used as a medium for investment and disinvestment. There exists a demand for and a supply of money itself. The value of money is determined by the same principles as the values of other economic goods. If changed price levels require modifications in inventory pricing procedures and depreciation cost measurement, gains and losses arising from changes in the value of money must also be recognized. H.W. Sweeney has emphasized, more than any other individual, the influence of changing price levels on the accuracy and relevance of accounting reports. The procedure set forth by Sweeney prescribes that the balance sheet items be stabilized first.
J. Fred Weston (Sat,) studied this question.