Money Measurement Concept Basics and Importance
Money measurement concept is important and one can complete the accounting work this concept should be followed.
The money measurement concept recognizes transactions which are in the nature of financial, i.e., in terms of money, are recorded in the books of accounts. In business practice all the transactions are measured, expressed and recorded in terms of money. In accounting we can communicate only the business transactions and other events which can be expressed in monetary units. This is called monetary unit assumption.
Money measurement concept excludes all business transactions and events which cannot be measured in terms of money.
In accounting process, only the business transactions and events which are of financial nature are recorded. For example, when Human Resource Manager is not on good terms with Production Manager, the business is bound to suffer and met with risk in nature at small level. This fact will not be recorded, because it cannot be measured in terms of money.
Money Measurement concept
- This concept facilitates preparation of financial statements.
- The investors has known, because, it assures them that they will continue to get income on their investments in future.
Without this concept, the cost of asset and expenses cannot identify for the year.
The money measurement concept explains – cost of fixed assets and current assets, Long term Liabilities and Short term liabilities and Capital and revenue expenditure, Incomes and Expenses or profits and losses is made in the financial nature are relating to the business.
The Money measurement concept helps -
a) Money measurement concept helps in ascertaining the profit of the business as only the business expenses and revenues are recorded.
b) This concept facilitates the recording and reporting of business transactions from the business point of view.
c) This concept is important for valuation of assets and liabilities.
d) It is the very basis of accounting concepts, conventions and principles.
In view of accounting process the money measurement concept is applicable to all forms of business entity, because the aim is profit making. The non cash transaction such as depreciation and discount in the form trade quantity are valued and ascertained as money nature for arriving profit or loss.
The concept is invaluable in summarizing business operations, assets and liabilities, land in feet, building square feet, furniture in numbers and bank balance in rupee cannot be added up for balance sheet purpose unless they are all expressed in terms of the common measure of money.
The accounting records shows all the transaction under appropriate headings in terms financial value, i.e., in monetary value. The accounting records also are used as a basis for providing financial information for owners, employees, regulatory authorities and other interested persons.
Money measurement concept is inevitable in any accounting process and in the books of accounts is prepared only if the transaction relating to money value and the non –monetary value is not recorded. Money measurement concept is crucial part in the all accounting statements of the all types business entity.
Useful External Link: Auditor Independence