Which concept says that the only transactions that can be measured in terms of money?
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The monetary unit principle is the assumption that money itself is treated as a unit of measurement, and that all transactions or economic events recorded in the accounts of a business can be expressed and measured in monetary terms by a currency. Create invoices and manage your accounting online by using an easy invoicing program such as Debitoor. Sign up now! Isn’t it strange how “money” can be both a tangible and intangible good? You might go to the grocery store, and pay your bill with a physical £10 cash note. Whereas other times, you might be booking a flight ticket online, and pay for it via a credit card transfer - money
which you will never physically see. The similarity here is that money holds one strong characteristic - it has value. One of the generally accepted accounting principles is the monetary unit principle. The monetary unit principle states that business transactions should only be recorded if they can be expressed in terms of a currency. In other
words, anything that is non-quantifiable should not be recorded a business’ financial accounts. Over time, money has been adopted as a measurement unit in accounting. According to the monetary unit principle, when business transactions or events occur, they are first converted into money, and then recorded in the financial accounts of a business. The monetary unit principle simply applies to the monetary expression of economic events, and business transactions. As an
accounting principle, the monetary unit ensures that everything which is recorded in the [financial statements](/dictionary/financial-statement of a business can be measured in monetary terms by currencies which are stable and reliable. As aforementioned, the monetary unit principle states that businesses should
only record transactions which can be expressed in monetary terms, such as the unit of currency. This therefore means that items which are non-quantifiable should be omitted from the accounts of a business. An example of non-quantifiable items include customer service quality, employee skill level, management expertise, employee motivation, time lost due to damages or reparation etc. For example: Consider you work in a company where twice a year the CEO gives a highly valued lecture to all employees about morale and motivation in your work environment. This lecture can not be recorded in your business financial accounts, because it can not be measured in terms of money. Monetary unit principle and currencyOne of the assumptions of the monetary unit principle is that the value of the unit of currency (in which you are working with) is stable. This means that in everyday use, the monetary unit allows accountants to treat financial accounts of a business which have been recorded from different financial periods, as if they were the same. This principle therefore does not consider the concept of inflation. For example: Imagine you purchase a building for £20 000 in 2010, and you record this amount in the accounts of your business. However, because of inflation, that same building is now worth £50 000 in 2018. You can not make the necessary adjustment in the accounts of your business for the difference in value, because of the monetary unit assumption. You are therefore forced to ignore the impact of inflation. Debitoor and accounting principlesThe monetary unit principle is one of the accounting principles which is universally recognised, as a communication of financial information. It is important that you comply with these principles when recording the financial activities of your business. It can often be useful to follow the guide of an invoicing software such as Debitoor to ensure that your accounting is efficient and in order. Money measurement concept: As per this concept, only those transactions, which can be measured in terms of money are recorded. Since money is the medium of exchange and the standard of economic value, this concept requires that those transactions alone that are capable of being measured in terms of money be only to be recorded in the books of accounts. Transactions, even if, they affect the results of the business materially, are not recorded if they are not convertible in monetary terms. Transactions and events that cannot be expressed in terms of money are not recorded in the business books. For example; employees of the organization are, no doubt, the assets of the organizations but their measurement in monetary terms is not possible therefore, not included in the books of account of the organization. Measuring unit for money is taken as the currency of the ruling country i.e., the ruling currency of a country provides a common denomination for the value of material objects. The monetary unit though an inelastic yardstick, remains indispensable tool of accounting. It may be mentioned that when transactions occur across the boundary of a country, one may see many currencies. Suppose an Indian businessman sells goods worth Rs. 50 lakhs at home and he also sells goods worth of 1 lakh Euro in the United States. What is his total sales?Rs. 50 lakhs plus 1 lakh Euro. These are not amenable to even arithmetic treatment. So transactions are to be recorded at uniform monetary unit i.e. in one currency. Suppose EURO 1 = Rs. 55 Total Sales = Rs 50 lakhs plus 55 lakhs = Rs 105 lakhs. Money Measurement Concept imparts the essential exibility for measurement and interpretation of accounting data. In Simple Words – Only those transactions, which can be measured in terms of money, are recorded. Effects:
Money measurement concept ExampleThus, as per the money measurement concept, transactions which can be expressed in terms of money are recorded in the books of accounts. For example, sale of goods worth Rs.200000, purchase of raw materials Rs.100000, Rent Paid Rs.10000 etc. are expressed in terms of money, and so they are recorded in the books of accounts. But the transactions which cannot be expressed in monetary terms are not recorded in the books of accounts. For example, sincerity, loyality, honesty of employees are not recorded in books of accounts because these cannot be measured in terms of money although they do affect the profits and losses of the business concern. Another aspect of this concept is that the records of the transactions are to be kept not in the physical units but in the monetary unit. For example, at the end of the year 2006, an organisation may have a factory on a piece of land measuring 10 acres, office building containing 50 rooms, 50 personal computers, 50 office chairs and tables, 100 kg of raw materials etc. These are expressed in different units. But for accounting purposes they are to be recorded in money terms i.e. in rupees. In this case, the cost of factory land may be say Rs.12 crore, office building of Rs.10 crore, computers Rs.10 lakhs, office chairs and tables Rs.2 lakhs, raw material Rs.30 lakhs. Thus, the total assets of the organisation are valued at Rs.22 crore and Rs.42 lakhs. Therefore, the transactions which can be expressed in terms of money is recorded in the accounts books, that too in terms of money and not in terms of the quantity. SignificanceThe following points highlight the significance of money measurement concept : This concept guides accountants what to record and what not to record. l It helps in recording business transactions uniformly. l If all the business transactions are expressed in monetary terms, it will be easy to understand the accounts prepared by the business enterprise. l It facilitates comparison of business performance of two different periods of the same firm or of the two different firms for the same period. INTEXT QUESTIONSPut a tick mark (√) against the information that should be recorded in the books of accounts and cross mark (×) against the information that should not be recorded
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What is money measurement concept?The money measurement concept states that a business should only record an accounting transaction if it can be expressed in terms of money. This means that the focus of accounting transactions is on quantitative information, rather than on qualitative information.
Which concept implies that only those transactions which can be expressed in terms of money are recorded in the books of accounts?2 Money Measurement Concept The concept of money measurement states that only those transactions and happenings in an organisation which can be expressed in terms of money such as sale of goods or payment of expenses or receipt of income, etc., are to be recorded in the book of accounts.
What are some examples of money measurement concept?Money measurement concept Example
100000, Rent Paid Rs. 10000 etc. are expressed in terms of money, and so they are recorded in the books of accounts. But the transactions which cannot be expressed in monetary terms are not recorded in the books of accounts.
Which of the following is related with money measurements concept?According to the money measurement concept, any transaction which cannot be measured in monetary value will not be recorded and will be left out of the records, hence out of the above only option B is correct.
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