According to the money measurement concept , only those transactions, which can be measured in terms of money are recorded.
What is money measurement concept?
Since money is the medium of exchange and the standard of economic value. And the money measurement concept requires that those transactions alone that are capable of being measured in terms of money be only to be recorded in the books of accounts.
The transactions ,even if, they affect the results of the business materially , are not recorded. If they are not convertible in the business books. Further, transactions and events that can not be expressed in terms of money are not recorded in the business books.
For example:
employees of the organization are, no doubt, the assets of the organization but their measurement in monetary terms is not possible . Therefore ,not included in the books of account of the organization.
Measuring unit for money is taken as the currency of the ruling currency i.e., the ruling currency of a country provides a common denomination for the value of material objects.
It may be mentioned that when transactions occurs across the boundary of a country , one may see many currencies. Suppose a businessman sells goods worth ₹50 lakhs at home and he also sells goods worth of 1 lakh Euro in the united states.
Therefore, it is recognized by all the accountants that this concept has its own limitations and inadequacies. Yet it is used for accounting purposes because it is not possible to adopt a better measurement scale.
These are not amenable to even arithmetic treatment. So transactions are to be recorded at uniform monetary unit i.e. in one currency. Suppose EURO 1 = ₹90.87.
Total sales = ₹50 lakhs plus 90.87 lakhs = ₹140.87 lakhs. Money Measurement Concept imparts the essential flexibility for measurement and interpretation of accounting data.
This concept ignores that money is an inelastic yardstick for measurement. As it is based on the implicit assumption that purchasing power of the money is not of sufficient importance as to require adjustment. Also, many material transactions and events are not recorded in the books of accounts. Just because they cannot be measured in monetary terms.
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