Money Measurement Concept
The money measurement concept says that a business should record only those transactions which can be expressed in monetary terms. It means that transactions like purchase and sale of goods, rent payment, expenses payment, earning of revenue, etc., will be recorded in the books of accounts of the firm. However, transactions or happenings, like the research department’s creativity, machinery breakdown, etc., will not be recorded in the books of accounts of the firm. Besides, the records of transactions of a firm should not be recorded in physical units, such as 3 acre land, 20 computers, 40 chairs, etc., instead, they should be recorded in monetary terms, such as ₹13 lakh for land, ₹15 lakh for computers, and ₹2 lakh for chairs, etc., in the books of accounts.
However, there are two drawbacks of this concept in accounting. Firstly, according to this concept, the accounting of a business is limited to the recording of information that can be expressed in a monetary unit, but does not involve or record essential information that cannot be expressed in monetary units. Secondly, the concept has the limitations of the monetary unit itself.
Accounting Concepts: Types, Examples & Principles
Theory Base of Accounting consists of accounting concepts, principles, rules, guidelines, and standards that help an individual understand the basics of accounting. These Concepts are developed over time to bring consistency and uniformity to the accounting process.
GAAP or Generally Accepted Accounting Principles are the rules and procedures defined and developed by the Financial Accounting Standards Board (FASB) that an organization has to follow for the proper creation of financial statements consistent with the industry standards. The General Accepted Accounting Principles are also known as Accounting Concepts. The primary objective of GAAP is to ensure a basic level of consistency in the accounting statements of an organization. Financial statements prepared with the help of GAAP can be easily used by the external users of the accounts of a company.
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