Monetary working capital adjustment in current-cost accounting: how inflation or changing price levels affect the monetary funds needed for normal trading operations.
Monetary working capital adjustment is the narrower current-cost-accounting idea that focuses on the monetary side of working capital, especially receivables, payables, cash-related operating balances, and the financing impact of price-level change.
It is used to show that maintaining the same real operating capacity may require more monetary resources when prices rise.
Monetary working capital adjustment is the more specific focus on monetary operating balances and the funding effect of inflation or price change.If price levels rise but accounting still relies on older carrying amounts, reported profit can overstate the amount truly available for distribution or reinvestment. Monetary working capital adjustment tries to preserve a clearer view of operating capital maintenance.