Question

Explain the money measurement principle of accounting.

Answer 1

1. On the basis of this concept, only those transactions are recorded in accounts which can be expressed in terms of money. In other words, an event, however important it may be to the business, will not be recorded unless its monetary effect can be measured with a fair degree of accuracy.
2. For example, the retirement of the chairman of the company cannot be recorded because it is not possible to measure the monetary effect of retirement except in terms of gratuity and other benefits payable to the chairman.
3. Money is a common denominator. With the help of money, diverse items can be added together. The total value of assets, such as raw materials, machinery, land and buildings, furniture and fixtures, etc., can be measured in terms of money. Thus, money measurement concept helps to make accounting records homogeneous, relevant, simple and understandable.