Question

Why money measurement concept is essential for accounting transactions?

Answer 1

Accounting records only monetary transactions. Events or transactions which cannot be expressed in terms of money do not find a place in the books of accounts though they may be very useful in the business.

For example, if a business has got a team of dedicated and trusted employees, it is definitely an asset to the business but since their monetary measurement is not possible, they are not shown in the books of the business.

Another example we can take is if a business owns Rs. $10,000$ cash, $600$kg of raw material, two trucks and $1000$ Sq. feet of building spaces, etc., these amounts cannot be added together to produce a meaningful total of what the business owns.

However, if we express all these items in money values we can get a precise estimate of the assets of the business.

The transactions involving these can thus be recorded clearly and easily in their values of money.