EDUCBA

EDUCBA

MENUMENU
  • Free Tutorials
  • Certification Courses
  • 250+ Courses All in One Bundle
  • Login

Money Measurement Concept

Home » Finance » Blog » Accounting Fundamentals » Money Measurement Concept

Money Measurement Concept

Introduction of Money Measurement Concept

The money measurement concept is an accounting concept based on the principle that a business should record only suchoccurring transactions and events which have the capability of being measured in monetary terms i.e.at a transaction price which is equivalent to cash outflow/ inflow in terms of money, measurable in the currency unit used of that particular country to provide quantitative information rather than qualitative information.

The money measurement concept which is also known as the measurability concept states that during accounting for all events and transactions, one should understand whether any event is capable of being recording in monetary terms in which are capable of being priced or measured in money value. Only transactions having such capability should be recorded and accounted while in case if it is not possible to assign a monetary value to a transaction, such an event should not be recorded in the book of accounts. However, as per applicable statutory norms, those events may need to be disclosed in the supplementary notes of accounting statements to help users in better understanding the financial position and performance of the entity.

Start Your Free Investment Banking Course

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

Examples of Money Measurement Concept

Following are the examples are given below:

Example #1

Skills and competence of human personnel employed in a company contribute to the progress and performance of the company although it cannot be attributed as an objective monetary value and therefore is not recognized as assets an in company’s balance sheet. However, transactions related to employees that can be measured in monetary terms such as salary expenses, pension obligations towards the company are to be measured and recognized as a reliable source to be added in financial statements.

Example #2

The working atmosphere, office culture of the organization, safety measure to prevent hazards in a company, etc all add to the qualitative benefit of the company but cannot be measured in quantity. Hence they have an indirect impact on the financial performance of the entity and can not be recorded.

Example #3

General Motors was performing well till March 2020 but one day due to the spread of Covid-19, the government announced complete lockdown for three months. In these three months, the sale of General Motor cars drastically falls down as no cars were sold during these months and the production line halted this caused the company immeasurable loss that cannot be recorded in the book of accounts. But this inevitable event has to be disclosed indirectly in the book of accounts.

Criticism of Money Measurement Concept

 Money is adopted as a medium of value in most accounting items. However, there are many entities whose resources are not incredibly expressed in terms of money and does not have quantitative value. Rather certain attributes that a company posses such as quality of the workforce, management, office culture, company reputation, and location adds up in multifold benefit to the company but is not recorded in the book of accounts as these do not possess monetary value. Also, the money measurement concept does not take into account the changing purchasing power of money as a change in the level of prices affects the value of an individual company’s resources. This shows that the money measurement concept is not enough to reflect the true value of the enterprise.

Importance of Money Measurement Concept

Since money is a common unit to record the transactions related to the assets, liabilities, losses, income and capital. It is helpful in preparing and presenting the statement of Profit and Loss A/c and Balance Sheet. Business and company valuation calculation becomes easier with money measurement concept as it takes into account only the transactions recorded in monetary terms. The cost can be attributed to a building, equipment purchased, the hardware used in a company to get a meaningful monetary figure. Summation of all such items reduced by value of its liabilities will give up the organization’s value. Many business transactions are recorded on the assumption that money does not change its value too often.

Popular Course in this category
Finance for Non Finance Managers Course (7 Courses)7 Online Courses | 25+ Hours | Verifiable Certificate of Completion | Lifetime Access
4.5 (5,576 ratings)
Course Price

View Course

Related Courses
Cost Accounting Course (5 Courses)US GAAP Course (29 Courses with 2020 Updated)

Advantages of MMC

Some of the advantages are given below:

  • MMC helps in maintaining business records. All monetary transactions that take place in an entity are recorded.
  • Money measurement concept helps in the preparation of financial statements.
  • As all the transactions are recorded it becomes easier to compare the results of one period to another.
  • It forms a basis of evidence in legal matters.
  • The shareholders and investors get enough information about the company’s progress which help them in making out exact inference regarding their investment.
  • The taxation related queries and matters get easily comprehended.
  • Business valuation becomes easy as money invested and lost is properly calculated.

Limitations of MMC

Some of the limitations are given below:

  • Non-financial transactions that aid in the progress of an entity cannot be recorded in monetary terms which hampers the proper valuation of assets that may be required in the future.
  • There are many factors that contribute to long term changes in an entity that are not accounted for.
  • Some key underline advantages of business are not accounted for or disclosed in the book of accounts that tends to under-represent the long term ability of a business to generate maximum profits.
  • As the value of money is not stable due to inflation and deflation or if the business has international transactions the value of money also fluctuates with exchange rates which may not provide exact information through the book of accounts about the business growth.

Conclusion

The money measurement concept is a measurability concept that helps in preparing and presenting financial statements of the company, but it may not adequately represent and forecast the ups and downs of a business and the uncertainties that may prevail in the future. Although it possesses some demerits all of them can be overcome. Today all the business entities throughout the world use this concept to record and present its accounting transactions.

Recommended Articles

This is a guide to Money Measurement Concept. Here we also discuss the introduction to Money Measurement Concept along with criticism, importance, advantages and limitations. You may also have a look at the following articles to learn more –

  1. Economics Example
  2. Marking to Market 
  3. Time vs Money
  4. Hard Money vs Soft Money

All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)

250+ Online Courses

40+ Projects

1000+ Hours

Verifiable Certificates

Lifetime Access

Learn More

1 Shares
Share
Tweet
Share
Primary Sidebar
Finance Blog
  • Accounting fundamentals
    • Direct vs Indirect Cash Flow Methods
    • Salvage Value
    • Balance Sheet Analysis
    • Current Liabilities Examples
    • Debtor
    • Other Comprehensive Income
    • Period Costs
    • Inventories List
    • Marketable Securities in Balance Sheet
    • Gross Sales
    • Tax Haven
    • Interim Reporting
    • Date of Record of Dividends
    • Short Term Assets
    • Revenue Streams
    • Tax Planning
    • Accounts Receivable Journal Entry
    • Book Profit
    • Capital Budgeting Importance
    • Accounts Payable Cycle
    • Inventory Audit
    • Estimated Tax
    • Dividend Declared
    • SG & A Expenses
    • Tax Lien
    • Excise Tax Examples
    • Accelerated Share Repurchase
    • Accounting Ethics
    • Accounts Payable Credit or Debit
    • Accounting for Fair Value Hedges
    • Long Term Debt in Balance Sheet
    • Assets Example
    • Audit Assertions
    • Accounts Receivable Process
    • List of Operating Expenses
    • Income Tax Accounting
    • Non-Operating Expenses
    • Unrealized Gains and Loses
    • Warranty Expense
    • What is Budgeting?
    • WIP Inventory
    • Current Liabilities
    • Zero Based Budgeting
    • Types of Liabilities on Balance Sheet
    • Marginal Costing vs Absorption Costing
    • Non-Current Liabilities Examples
    • Cash Equivalents
    • Types of Assets
    • Assets List
    • Deferred Income Tax
    • Working Capital Management Importance
    • Extraordinary Items
    • Deferred Tax
    • Long Term Liabilities
    • Perpetual Inventory System
    • Intangible Assets Examples
    • Goodwill
    • Working Capital Loan
    • Consolidated Financial Statement
    • Contingent Asset
    • Cash and Cash Equivalents
    • Fixed Assets
    • Current Asset
    • Financial Assets Types
    • Financial Assets
    • Wasting Asset
    • Write off
    • Objectives of Financial Statement Analysis
    • Earnout
    • Hire Purchase
    • Sublease
    • Off Balance Sheet
    • Liabilities Example
    • Leasehold
    • Off Balance Sheet Financing
    • Revolving Credit Facility
    • General Reserve
    • Accounting Information System
    • Accounting Transaction
    • Limitations of Financial Statement Analysis
    • 3 Types of Inventory
    • Cook the Books
    • Non Performing Assets
    • Revenue Reserve
    • Commitments and Contingencies
    • Conservatism Principle of Accounting
    • Money Measurement Concept
    • Materiality Concept
    • Types of Accounting
    • Types of Financial Statements
    • Balance Sheet Items
    • Components of Financial Statements
    • Cost Method
    • Related Party Transactions
    • Relevance in Accounting
    • Responsibility Accounting
    • Tragedy of the Commons
    • Accounts Receivable Aging
    • Accounting Scandals
    • Cost Benefit Principle
    • Accrual Accounting Examples
    • Fiscal Year
    • Financial Statement Limitations
    • Grey List
    • Objectives of Financial Statements
    • What are Accounting Principles?
    • Accounting Controls
    • Users of Financial Statements
    • Accounting Cycle
    • Accounting Estimates
    • Window Dressing in Accounting
    • What are Accounting Policies?
    • Fringe Benefits
    • Full Disclosure Principle
    • Financial Statement Examples
    • Sunk Cost
    • Accounts Receivable Turnover Ratio
    • Days in Inventory
    • Current Ratio vs Quick Ratio
    • Investment Banking vs Private Equity
    • Private Equity vs Hedge Fund
    • Accounting Ratios
    • Shell Corporation
    • Cost Accounting Career
    • Funds from Operations
    • Accounting Career
    • Actuaries Career
    • General Ledger Accounting
    • Forensic Accounting Career
    • Auditing Career
    • Budgeting Career
    • Gross Profit Ratio
    • Management Accounting Career
    • Cycle Counting
    • Going Concern Concept
    • Debit Note vs Credit Note
    • EBIT vs Net Income
    • EBIT vs Operating Income
    • EBITDA vs Net Income
    • EBITDA vs Operating Income
    • GAPP vs Non-GAAP
    • Finance vs Lease
    • Gross sales vs Net sales
    • Income Tax vs Payroll Tax
    • Mortgage Banker vs Broker
    • Revenue vs Net Income
    • Shareholder vs Stakeholder
    • Stock Option vs RSU
    • Full Form of FYI
    • Return on Invested Capital
    • Transaction Exposure
    • LLC vs Partnership
    • Replacement Cost
    • Unit Contribution Margin
    • Accounts Payable vs Notes Payable
    • CA vs CS
    • Capitalizing vs Expensing
    • CPA vs CA
    • Trial Balance vs Balance Sheet
    • CA vs MBA
    • Merger Accounting
    • Cash Management
    • Sole Proprietorship vs LLC
    • Manufacturing Overhead
    • Asset Retirement Obligation
    • Temporary Account
    • Leveraged Lease
    • Predetermined Overhead Rate
    • Drag-Along Rights
    • Special Journal
    • Interest vs Dividend
    • Direct Materials
    • Accounting Method
    • Return on Sales
    • Calendar Year vs Fiscal Year
    • Contribution Margin Income Statement
    • Activity Based Budgeting
    • Common Size Income Statement
    • Capital Lease vs Operating Lease
    • Insolvency vs Bankruptcy
    • Vertical Analysis of Income Statement
    • Debt vs Equity Financing
    • Adjusted EBITDA
    • LLC vs Inc
    • Return on Average Capital Employed
    • Stocks vs Real Estate
    • Return on Equity
    • Return on Capital Employed
    • Diluted Earnings Per Share
    • Limited Partner vs General Partner
    • Basic EPS
    • Cash Flow Return on Investment
    • Fixed vs Variable
    • Public Company vs Private Company
    • Market Order vs Limit Order
    • Return on Total Assets
    • Hard Cost vs Soft Cost
    • Return on Average Assets
    • Ethereum vs Ethereum Classic
    • Capital Employed
    • Gross Profit Percentage
    • OIBDA
    • Average Collection Period
    • Profit Margin
    • EBITDA Margin
    • Working Capital Turnover Ratio
    • Marginal vs Effective Tax Rate
    • CFO vs Controller
    • Accounting Interview Questions
    • EBITDA
    • Asymmetric Information
    • Days Payable Outstanding
    • Journal Examples
    • Debit vs Credit
    • Lease vs Rent
    • Buying vs Leasing
    • Finance Job From Engineering
    • Days Inventory Outstanding
    • Horizontal Integration Example
    • Revenue Expenditure
    • Accounts Payable Turnover Ratio
    • Statement of Cash Flows
    • Days Sales Uncollected
    • Days Sales Outstanding
    • Statement of Income Example
    • Unadjusted Trial Balance
    • Red Herring Example
    • Revenue vs Turnover
    • Functions of Financial Market
    • Cost of Goods Sold Example
    • Operating Ratio
    • Stock Turnover Ratio
    • Bill of Sale Examples
    • Break Even Analysis Example
    • Financial Analysis Example
    • Statement of Retained Earnings Example
    • Equity Ratio
    • Long Term Liabilities Example
    • Defensive Interval Ratio
    • Operating Expense Example
    • Solvency Ratio
    • Capital Adequacy Ratio
    • Cash Flow From Operations Ratio
    • Working Capital Example
    • Cash Reserve Ratio
    • Quick Ratio
    • Loan Sharks
    • Fixed Asset Examples
    • Partnership Example
    • Standard Deviation Examples
    • Accounting vs CPA
    • Period Cost vs Product Cost
    • Cash Ratio
    • Investment vs Speculation
    • Annuity vs Lump Sum
    • Bank Draft vs Certified Cheque
    • Bidding vs Auction
    • Better in Business and Finance
    • Direct Tax vs Indirect Tax
    • Financial Ratio Analysis Technique
    • EPS and Diluted EPS
    • Stocks vs Bonds
    • IFRS Vs US GAAP
    • Finance Degree Career Options
    • Tax Slabs & Rates
    • Lease vs Buy
    • Interest Rate vs Annual Percentage Rate
    • Long Term vs Short Term Capital Gains
    • Memorandum of Association vs Article of Association
    • Large Cap vs Small Cap
    • CPA vs CMA
    • Assets vs Liabilities
    • Revenue vs Income
    • Bookkeeping vs Accounting
    • Financial Lease vs Operating Lease
    • EBIT vs EBITDA
    • Revenue vs Sales
    • Common stock vs Preferred stock
    • US GAAP vs IFRS
    • Current Account vs Capital Account
    • IFRS in India
    • Finance vs Economics
    • ACCA vs CIMA
    • Current Assets vs Non Current Assets
    • Economic Examples
    • Investment vs savings
    • Active vs Passive Investing
    • Financial Accounting vs Management Accounting
    • Revenue vs Earnings
    • Trade Discount vs Cash Discount
    • Limited Liability Company
    • Finance for Non Finance Professionals
    • Costs vs Expenses
    • Chapter 11 vs Chapter 13
    • Why Financial Analytics
    • Accounting vs Financial Management
    • ACA vs ACCA
    • ACCA vs CPA
    • Budget vs Forecast
    • Positive Economics vs Normative Economics
    • CA vs ACCA
    • Stakeholders Example
    • Stock vs Options
    • Liquidity vs Solvency
    • Stock vs Equities
    • Franchising vs Licensing
    • GDP vs GNP
    • Inflation vs Deflation
    • Economic Growth vs Economic Development
    • Direct cost vs Indirect Cost
    • Accrual Accounting vs Cash Accounting
    • FCFF vs FCFE
    • Public vs Private Accounting
    • Capex vs Opex
    • BSE vs NSE
    • Loans vs Advances
    • Discount Rate vs Interest Rate
    • ROIC vs ROCE
    • Percentage Of Completion Method
    • 10K vs 10Q
    • Shares Outstanding vs Float
    • Contribution Margin vs Gross Margin
    • Short Term vs Long Term Capital Gains
    • General Journal vs General Ledger
    • Outsourcing vs Offshoring
    • Depreciation vs Amortization
    • Liability vs Debt
    • Asset Purchase vs Stock Purchase
    • Accrual vs Provision
    • Actuary vs Accountant
    • Stock vs Inventory
    • Liability vs Expense
    • Dividends EX-Date vs Record Date
    • Bid Price vs Ask Price
    • Dividend vs Growth
    • Time vs Money
    • IRA vs 401 (k)
    • Corporation vs LLC
    • CEO vs President
    • Margin vs Markup
    • Leasehold vs Freehold
    • Lending vs Borrowing
    • Non-Profit vs Not For Profit
    • Corporation vs Incorporation
    • CFO vs CEO
    • Purchase vs Procurement
    • Deficit vs Debt
    • Internal Audit Vs External Audit
    • C Corp vs S Corp
    • Absolute Advantage vs Comparative Advantage
    • Tangible vs Intangible
    • Executive Director vs Managing Director
    • Company vs Firm
    • Insurance vs Assurance
    • Expense vs Expenditure
    • Hard Money vs Soft Money
    • Entrepreneurship vs Management
    • Loan vs Mortgage
    • Fair Value vs Market Value
    • Chief Executive Officer vs Managing Director
    • Manufacturing vs Production
    • Random Error vs Systematic Error
    • 401(K) vs Roth IRA
    • 403(b) vs 457
    • Adjusting Entries
    • Equity vs Commodity
    • Turnover vs Profit
    • Effective Interest Rate
    • Working Capital Ratio
    • Margin vs Profit
    • Loan vs Lease
    • Shares vs Debentures
    • Equity vs Fixed Income
    • Market Equilibrium
    • Economics vs Business
    • Secured vs Unsecured Credit Card
    • Profitability vs Liquidity
    • Z score vs T score
    • Equity vs Asset
    • Geometric Mean vs Arithmetic Mean
    • Cost vs Price
    • Industry vs Sector
    • ShortSale vs Foreclosure
    • Revenue vs Profit
    • Real Interest Rate
    • Account Payable vs Accrued Expense
    • Day Trading vs Swing Trading
    • Indirect Costs
    • Graphs vs Charts
    • Issued Shares vs Outstanding Shares
    • Creditor vs Debtor
    • Annuity vs IRA
    • Pension vs Annuity
    • Debt Consolidation vs Bankruptcy
    • Equity vs Shares
    • Economic Utility
    • Average vs Weighted Average
    • Operating Profit vs Net Profit
    • Purpose of Income Statement
    • NASDAQ vs Dow Jones
    • Direct Method of Cash Flow Statement
    • Real GDP
    • Derivatives Example
    • Nominal GDP
    • Generally Accepted Accounting Principles
    • Cost of Sales vs Cost of Goods Sold
    • Historical Value vs Fair Value
    • General Ledger vs Trial Balance
    • Actual Cash Value vs Replacement Cost
    • Job Costing vs Process Costing
    • Standard Cost vs Actual Cost
    • 401k vs Annuity
    • FIFO vs LIFO
    • Bid Price vs Offer Price
    • Sole Proprietorship vs Partnership
    • Equity Shares vs Preference Shares
    • Debt vs Equity
    • Cost Accounting vs Financial Accounting
    • Coupon vs Yield
    • Career in Finance
    • Gross Salary vs Net Salary
    • Tax Credit vs Tax Deduction
    • Variance vs Standard Deviation
    • What is Disposable Income
    • Liabilities in Accounting
    • Chapter 7 vs Chapter 11
    • Budgeting Examples
    • Fixed Costs Example
    • Joint Venture Example
    • Quantitative Research Example
    • Bootstrapping Examples
    • Monopoly Examples
    • Monopolistic Competition Examples
    • Risk Assessment Example
    • Inflation Accounting
    • Defined Benefit Plan
    • Variable Costing Example
    • Acquisition Examples
    • Cognitive Dissonance Example
    • Opportunity Costs Examples
    • Globalization Example
    • Histogram Examples
    • Mean Example
    • Trial Balance Example
    • Command Economy Examples
    • Sunk Cost Examples
    • Compounding Example
    • Compound Interest Example
    • Profit vs Income
    • Joint Venture vs Partnership
    • Comparative Advantage Example
    • Bank Reconciliation Example
    • Competitive Advantage Example
    • Accrual vs Deferral
  • Asset Management Tutorial (63+)
  • Banking (43+)
  • Corporate Finance Basics (125+)
  • Credit Research Fundamentals (6+)
  • Economics (44+)
  • Finance Formula (372+)
  • Financial Modeling in Excel (13+)
  • Investment Banking Basics (60+)
  • Investment Banking Careers (26+)
  • Trading for dummies (65+)
  • valuation basics (24+)
Finance Blog Courses
  • Finance for Non Finance Managers Certification
  • Cost Accounting Course
  • US GAAP Course
Footer
About Us
  • Blog
  • Who is EDUCBA?
  • Sign Up
  • Corporate Training
  • Certificate from Top Institutions
  • Contact Us
  • Verifiable Certificate
  • Reviews
  • Terms and Conditions
  • Privacy Policy
  •  
Apps
  • iPhone & iPad
  • Android
Resources
  • Free Courses
  • Investment Banking Jobs Offer
  • Finance Formula
  • All Tutorials
Certification Courses
  • All Courses
  • Financial Analyst All in One Bundle
  • Investment Banking Training
  • Financial Modeling Course
  • Equity Research Course
  • Private Equity Training Course
  • Business Valuation Course
  • Mergers and Acquisitions Course

© 2020 - EDUCBA. ALL RIGHTS RESERVED. THE CERTIFICATION NAMES ARE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you
Book Your One Instructor : One Learner Free Class

Let’s Get Started

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

EDUCBA

*Please provide your correct email id. Login details for this Free course will be emailed to you
EDUCBA Login

Forgot Password?

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

Special Offer - Finance for Non Finance Managers Certification Learn More