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Friday, 17 February 2012

Accounting values everything that happens in the economy on a daily basis

Accounting values everything that happens in the economy on a daily basis


Financial reporting is the valuing, recording, classifying, summarizing and reporting of economic transactions and events of the three basic economic items in terms of an unstable depreciating functional currency during all levels of inflation and an unstable appreciating functional currency during deflation.

Accounting is the daily valuation and recording of an entity´s economic activities.

Accounting always deals with economic values on a daily basis when an entity´s daily economic activities are accounted.

Financial reporting is a real net asset valuation of an entity on a specific day in terms of a Daily Consumer Price Index or daily monetized indexed unit of account, e.g. the Unidad de Fomento in Chile during low inflation, high inflation and deflation or a daily rate, for example the US Dollar parallel rate or a Brazilian-style Unidade Real de Valor daily index rate during hyperinflation. The real net asset value of an entity is reported in financial terms by means of valuations of the three economic items in terms of IFRS by means of the implementation of the practice of financial reporting.

A statement of financial position (a financial report) is prepared periodically reporting the real net asset value (not the real market value or the real intrinsic value) of an entity on a specific day, e.g. the end of a month, the end of a quarter, the end of six months, the end of a financial year or sometimes a longer financial period.

Financial reporting is a financial report relating to an instant in an entity´s economic activity. A report about the real net asset value of an entity on one single day: on the date of the financial report in terms of the Daily Consumer Price Index or daily rate on that day when the financial report is accessed or viewed on that day under capital maintenance in units of constant purchasing power (CIPPA).

The next day, and every day thereafter, the real net asset value of the entity is generally different because the daily valuations of variable real value non-monetary items have changed, the entity has created more constant real value in the form of constant real value non-monetary net income, has suffered a constant real value non-monetary net loss or extra capital or other resources have been contributed by shareholders or other third parties. The entity is a going concern and its real net asset value generally changes day after day.

However, the real net asset value of the entity as reported in the statement of financial position on the date of the report stays constant in real value (not in nominal value during inflation and deflation) for an indefinite period of time with reference to the date of the financial report. But, the real value of the unstable monetary unit of account (the functional currency), as represented by the Daily CPI or monetized daily indexed unit of account in a non-dollarized economy has changed as evidenced by the daily nominal change of the index value during all levels of inflation and deflation. Thus, all items in a historic statement of financial position and all historic financial reports have to be valued at the current, i.e. today´s, Daily CPI or daily rate under capital maintenance in units of constant purchasing power (CIPPA).

Economic items are valued or measured whenever economic transactions and events are accounted. Financial reporting under capital maintenance in units of constant purchasing power does not simply report on what took place in the past in nominal historical cost terms. Accounting is not just a scorekeeping exercise of what happened in the past. Accounting values everything that happens in the economy on a daily basis.

The three fundamentally different basic economic items in the economy, namely, monetary items, variable items and constant items, have economic values expressed in terms of unstable money; i.e. the unstable monetary unit of account. Economic transactions and events involving these three basic economic items are accounted in an organized manner when a double entry accounting model is implemented: journal entries, general ledger accounts, trial balances, cash flow statements, income and expenses in the income statement, assets and liabilities in the statement of financial position plus other financial, management and costing reports.

Accounting entries are valuations of the economic items (the debit items and the credit items) being accounted.

Nicolaas Smith

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