Money Measurement Concept

The money measurement concept is a fundamental accounting principle, stating that the business transactions expressed in monetary terms, i.e., currency, can be recorded in the financial statements. The concept helps in maintaining uniformity and accuracy in the financial reports. It is the backbone of financial reporting that offers clarity to businesses. The monetary transaction that can affect the company’s financial status is ushered into the balance sheet; however, the non-monetary factors are not included. The purchase of a machinery unit for the expansion of the company is recorded, while employee satisfaction is not recorded. 

 

What are the Key Features of the Money Measurement Concept?

The concept of the money measurement system follows the “only monetary transactions” rule. 

The several effects of currency-related records tell us about financial health, and understanding this helps dissect the resulting reasons. 

The Key Features of the Money Measurement Concept are listed below:
 

• Monetary Transaction records only
• Easy comparison of financial records 
• Uniformity all through the record-keeping
• The non-monetary factors are not mentioned in the books, irrespective of their impact on the business.
• The uniform unit of measurement backs the accurate reporting in terms of currency for a country. 

 

Examples of the Money Measurement Concept 

• When the company purchases a piece of machinery for INR 40 lakhs, it will be recorded in the financial books. 
• When an employee in a company works on improving productivity, that adds value to the company but cannot be recorded
• When a customer complains and files a lawsuit, until the company settles, the claim is not recorded in the financial record.

 

What is the Significance of the Money Measurement Concept?

The building block of a business is clarity in its finances; one little step-down and all could fall apart. The money measurement concept provides the clarity needed at the end of each accounting period. This record-keeping and analysis is significant in managing and improvising any organization. 

The key significance of the Money Measurement Concept are:

• Provides clarity to the financial objectives 
• Offers comparison scope with competitors 
• Offers a clear perspective to the investors and creditors
• Standardized records are maintained 

 

What are the Challenges in Money Measurement Concept?

• The non-monetary factors are excluded 
• The comparison dynamics fluctuate a lot due to inflation 
• The overall financial health is sometimes not represented due to a lack of information 

 

Learn More about Accounting Concepts 

• Final Accounts 
• How humans invented accounting?
• Subsidiary Books
• Demat Account
• Demand Draft
• Function of Commercial Banks 

 

Unlock the latest in Commerce! Read our informative Commerce Concepts and stay a step ahead! 

 

Frequently Asked Questions (FAQs)

Where are all the transactions recorded for the money measurement?

The transactions expressed in monetary terms are recorded in the balance sheet. 

Does the concept of money measurement affect financial statements?

Quantifiable data in terms of monetary transactions that are recorded in the financial statement represent the company's economic health, providing opportunities for improvisation.

Why are the non-monetary factors not recorded in the financial records?

The non-monetary factors affecting a company's financial health cannot be measured objectively. They are not recorded in the financial statements as they are not quantifiable.