Week 5 Forum Initial
Identify the type of capital maintained when the measuring unit is (a) nominal dollars, (b) constant
dollars, and (c) current costs. When would nominal cost and constant dollar measurements provide
equivalent results?
Accountants prepare financial statements to provide information to entities externally such as investors
and creditors and internally to managers and other officers of a company. Not only does the way in
which financial statements are presented affect the quality of the information provided but so do
external factors affecting the value of the numbers. Just as knowledge of the type of currency
representing the numbers listed will affect the ability to accurately assess the information presented, so
do other factors. In the pursuit of providing as much quality information as possible, the accounting
world uses three types of monetary measuring units. They are nominal dollars, constant dollars, and
current costs.
Nominal dollars, also known as current dollars, is “a term describing income in the year in which a
person, household, or family receives it.” (United States Census Bureau, 2016). These are historical
costs the amount of which were reported when, for example, an item was valued at when it was first
A classic definition of income states that income is the amount one could consume at the end of a
period and still be as well off as at the beginning of the period. Embedded in this definition of
income is the concept of capital maintenance. Conceptually, income can occur only after the
beginning capital has been recovered. When accountants adopt different measuring units, they are
attempting to maintain different concepts of capital.
