Hello and welcome to Ambalink, where we convert your accounting problems into solutions. I am your host Kelvin. The concept that we are going to cover today is the money measurement concept. According to this concept, an accountant can record only such business transactions which have a monetary value.
If your transaction does not have a monetary value, then it cannot be recorded in the books of accounts, even if it is very important to your organization.
For example, sale of an asset lost by fire or even payment of any expenses can be recorded in the books of accounts. This is because they have a monetary value.
On the other hand, employee skills or accounting policies followed by the organization, cannot be recorded in your books. This is because they do not have a monetary value.
However, such facts and information can be disclosed as a footnote at the end of the financial statements. A footnote acts as a PS note in a letter. It is called footnote because it is given at the end or at the bottom of the financial statements.
Sometimes, the monetary value of the transactions are not readily available. In such cases, there are various methods which could be used for calculation. For example, if the monetary value of an asset is not known to us, we can either calculate it or we can directly settle down at the market value of that asset.
This money measurement concept adds definition to accountancy and it makes it easy for the people to understand and prepare the books of accounts.
Therefore, the money measurement concept means that a business transaction can be recorded in the books of accounts only if it can be valued in terms of money.
Hope you have understood this concept. If you have then leave a comment below.