Financial Management

What is Money Measurement Concept

Money Measurement Concept

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.

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

money measurement concept

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.

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