The Effects of Money Printing on Inflation Accounting

Abstract

There are several explanations, how inflation can occur and how it can affect different economic indicators. This paper provides and overview about the economic theory of money supply and inflation and concentrates on the expansionary monetary policy of central banks, which is actually driven by the printing of money in order to increase the money supply. From these findings one can conclude different outcomes concerning the increase of the inflation rate. Additionally the paper concentrates on the impacts of hyperinflation or high inflation on financial reportings of companies. The effects are considered in the topic of inflation accounting, where a restatement of the balance sheet and the income statement has to be applied. Such as restatement can be made with the constant purchasing power method, which is used in this work. Based on a simple example the paper shows the differences caused by inflation between the historical cost accounting and the inflation accounting.