Meaning of Money Measurement Concept:

The money measurement concept states that only those transactions and happenings in an organisation which can be expressed in terms of money are to be recorded in the book of accounts. Transactions such as sale of goods, payment of expenses, or receipt of income are recorded because they have a monetary value.

What is Not Recorded:

All transactions or happenings which cannot be expressed in monetary terms do not find a place in the accounting records. For example, the appointment of a manager, capabilities of human resources, creativity of the research department, or the image of the organisation among people cannot be recorded.

Use of Monetary Unit:

Another important aspect is that the records of transactions are to be kept not in physical units but in the monetary unit. For instance, an organisation may have assets like a factory on 2 acres of land, 30 personal computers, and raw material weighing 20 tons. These are expressed in different units and cannot be added together. Therefore, for accounting purposes, all assets are shown in money terms (rupees and paise) to give meaningful information about the total worth of the business.

Factor Making Comparison Difficult:

The changes in prices make it difficult to compare the monetary values of one year with another. Due to price changes, the value of money does not remain the same over a period of time. The value of rupee today on account of rise in prices is much less than what it was earlier.

Impact on Financial Statements:

When different assets bought at different points of time are added in the balance sheet, we are in fact adding heterogeneous values which cannot be clubbed together. Since the change in the value of money is not reflected in the book of accounts, the accounting data does not reflect the true and fair view of the affairs of an enterprise.