Financial Management

What is Money Measurement Concept in Accounting?

Introduction

The money measurement concept states that a corporation should only report those accounting transactions that can be represented in terms of money.

It means that the centre of accounting transactions is on quantitative data, preferably than on qualitative information.

A high number of items are never more reflected in a corporation’s accounting records, which suggests that they never appear in its financial statements.

Money measurement is the measurement of assets, liabilities, equity and the other financial resources of a business, including assets, liabilities, equity and the other financial resources (including cash and cash equivalents). The objective of money measurement is to estimate the value of these resources and to evaluate the changes over time.

Measurements of the financial resources and the performance of an organization are necessary to determine a firmâ€™s viability, profitability, and other financial information. It is the basis of accounting for business and for business decisions.

Objective of Money Measurement Concept

The objective of money measurement is to measure and value the resources and the financial flows of a business for planning purposes, including the measurement of financial performance and financial accounting. It measures the performance of the organization, the economic value of the products, services and other factors and the changes of these factors over time.

Assumption Behind Money Measurement Concept

This concept is based on the presumption that all transactions can be estimated in monetary terms. Another significant feature of this concept is an assumption about the resistance of the value of the monetary unit.

While in actuality, inflation appears in the erosion of the value of a monetary unit, accounting documents are based on the assumption that a monetary unit has a stable & permanent value.

For example:

The statement that the business of garment was started with Rs. 80,000 cash and 40,000 meters of silk cloth is insignificant & fails to explain to us the capital of the business. If the value of 40,000 meters of silk cloth is determined to be Rs. 2,00,000, we can reliably believe that the business was commenced with Rs. 80,000 + 2,00,000 = 2,80,000, which will be significant.

Conclusion

In accounting, the monetary measurement concept is a way of looking at money as a measure of value. In other words, it is a comparative statement that states the lesser amount as being more valuable than the greater amount. The two types of monetary measurements are those which have been translated to an equivalent number and those which have not been translated to an equivalent number. The first type may be called equivalence measurement and the second may be called non-equivalence measurement.