Question

Explain the Money Measurement Concept.

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.

Answer 2

1. According to this concept only those transactions are recorded in accounting which can be converted in terms of money. Other transactions, however important they may be, are not recorded if they cannot be converted in terms of money. There are two problems with this concept.
2. First, the concept assumes a stability in the value of money, for example, ₹ 100 a year from now will buy the same amount as it does today. Secondly, many factors of importance to the business are outside the purview of accounting.
3. Such matters include the quality of management, quality of goods or services, loyalty of employees, relationships within organisation and so on.
4. Money is a common denominator. For example, an organisation may, on a particular day, have a factory land, factory building, furniture, vehicles, bank balance, computers, raw materials and so on. With the help of money values, all these diverse items can be added together.