Economic and financial effects of inflation accounting in Turkey

Closest definition for inflation can be the increase in the general price level. This increase has many effects on economical units. High inflation, Turkey used to have since the 1970s, is one of the major problems of the Turkish Economy. Inflation affects individuals, society and associations in different ways. Inflation especially is damaging the companies? financial statements which are showing the results of the companies? activities, causing taxation on fictitious profits spoiling the homogeneity of the financial statements. Because of inflation, financial statements lack the property of giving proper information on companies? activity results. For this reason, in countries like ours, the inflation effects on the financial statements must be removed in order to have proper statements. In order to serve this purpose, the inflation correction law which was accepted in 30.12.2003 was started to be used from 01.01.2004 in our country. Using the previous year?s results it can easily be seen that inflation has insidious effect on financial statements, especially on non-monetary items such as inventories, depreciable fixed assets, capital and profit/loss accounts. The purpose of the inflation accounting is to arrange financial statements which became non-homogeneous and meaningless because of the change in the purchasing power of the money; and find the company?s activity results and to reveal the loss or gain the company has because of having monetary terms in hand.