Money measurement concept: Meaning of Money measurement
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.
Money measurement concept
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.
- Employees are not recorded as an Asset in the Balance Sheet.
- Inherently generated goodwill is not recorded in the books.
- Qualitative information is not recorded in the books of account