Money measurement concept
| Money measurement concept |
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| See also |
Money measurement concept is "the accounting convention which holds that accounting should only deal with those items which are capable of being expressed in monetary terms"[1]. The money measurement concept assumes that all transactions which can be expressed in monetary terms should be recorded in the accounting books. This is due to the fact that money is the basic carrier of value and the means of exchange between entities[2].
Monetary concept allows to standardize accounting entries by using monetary terms. This allows clearer bookkeeping and easier comparison of business results, for example for two periods or two companies[3].
Money measurement concept is one of basic accounting concept next to entity concept[4].
Criticism of money measurement concept
The adoption of money as a medium for expressing the value of various business resources of the company allowed for the unification of accounting entries. Money as a medium of value works well in most accounting items. However, there are resources of an enterprise whose credible expression only in monetary units is difficult or almost impossible. These include inter alia brand value, company's reputation, location, quality of workforce or quality of management. Some of these resources, due to their nature, may even be excluded from the financial statement of the company. A strictly monetary approach to accounting may therefore not fully reflect the true value of the enterprise[5].
In addition to the omission of non-monetary enterprise values, this approach does not take into account the changing purchasing power of money. This is important because the change in the level of prices affects the change in the value of individual resources of the company[6].
Other accounting concepts:
- Accounting period concept,
- Accrual concept,
- Cost concern concept,
- Dual aspect concept,
- Going concern concept,
- Matching concept,
- Objective concept,
- Realization concept,
- Separate entity concept.
Footnotes
References
- Atrill P. & McLaney E. & Harvey D., (2015), Accounting: An Introduction, Pearson Australia, Melbourne,
- Atrill P. & McLaney E. & Harvey D., (2013), Accounting for Business, Routledge, London & New York,
- Griff M., (2014), Professional Accounting Essays and Asignments, Lulu Press,
- Mohana Rao P., (2012), Fundamentals of accounting for CPT, PHI Learning Private Limited, New Delhi,
- Tulsian P.C. & Tulsian B., (2014), Financial Accounting for B. Com. (Programme), S. Chand Publishing, New Delhi.
Author: Wojciech Musiał
