The money measurement concept is a fundamental principle in accounting; it states that a business should only record an accounting transaction that can be expressed in terms of money.
- In other words, if an event or item cannot be evaluated, it should not be included in the financial statements. It takes into account only the transaction recorded in monetary terms.
- It helps in the preparation of financial statements. The business and company valuation calculation becomes easier with the money measurement concept.
- It takes into account only the transaction recorded in monetary terms.
- The shareholders and investors get enough information about the company’s progress, which helps them draw an exact inference regarding their investment.
- Although the money measurement concept is a measurability concept that helps in preparing and presenting the financial statements of the company, it may not adequately represent and forecast the ups and downs of a business and the uncertainties that may prevail in the future.
The money measurement concept is one of the key principles that underpin the accrual basis of accounting, which is widely used in financial reporting around the world.
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