Effects of inflation accounting on organizational decisions and financial performance in South African retail stores

Abstract

The inflation accounting technique allows a business to show or have a sensible picture of their gains due to present cost coordinates with present revenues. Thus, the effects of inflation accounting on organizational decisions and financial performance of Kwa-Zulu Natal retail stores were evaluated in this study. The study used a quantitative research method. A total of 161 completed questionnaires were received from respondents in the selected 20 listed stores in Kwa-Zulu Natal. Thus, the Exploratory Factor Analysis and linear regressions were employed in this study. The empirical study reveals how inflation accounting significantly impacts organizational decisions and financial performance of the retail business with such coefficients (F (1, 159) = 49.269, p < .0005; F (1, 159) = 28.959, p < .0005). The findings of this study highlighted positive relationships between the variables that were used. Thus, the study recommends that retail stores always consider inflation changes and apply inflation accounting techniques to make adjustments to produce more accurate results in their financial statements. Heated discussions now surround the basis of financial performance measurement via historical cost accounting. This influences their decision making and financial performance positively.

Keywords

• accounting
• Exploratory Factor Analysis
• financial statements
• historical cost
• inflation
• Johannesburg stock exchange