Money Measurement Concept of Accounting

Definition, Explanation and Use of Money Measurement Concept (Convention, Principle) of Accounting or Monetary Unit Assumption:

Money measurement concept (convention or principle) of accounting or monetary unit assumption defines and states that financial accounting is concerned only with the items which can be quantified and expressed in monetary terms.

The main effect of money measurement concept or monetary unit assumption is that business asset to which a monetary value cannot reasonably be attributed (e.g. the skill of the workforce) are normally ignored in the financial statements, even though those assets might be of great worth to the business concerned.

Example 1:

Consider a firm owns $500000 of cash, 30 tons of raw material, 5 vehicles and 10 acres of land. One cannot add or subtract these all things and never reach at meaningful conclusion. However if we express above items in monetary terms, then a conclusion can be made out.

Example 2:

Loyal, hardworking and punctual workers play a vital role in the progress and profitability of the business. These workers cannot be write as an asset of the business and cannot be expressed in money terms.