According to the money measurement concept, only the transactions that are measurable in money terms are to be recorded in the books of accounts of the business. On the other hand, those transactions that are not measurable in monetary terms are to be left out of record. There are two inherent limitations in this concept which are:
Limitations in Money Measurement Concept:
Items that cannot be expressed in terms of money cannot be recorded as accounting transactions. For example, employee skill level, working conditions, loyalty of customers, employee morale etc.
Money is assumed to have static value across the years but this doesn’t hold good as the value of money keeps on changing day-by-day.
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According to The American Institute of Certified Public Accountants “Principles of Accounting are the overall law or rule adopted or proposed as a guide to action, a settled ground or basis of conduct or practice”
After going through this lesson, you will be ready to understand the ‘Basic Accounting Terms’ that we commonly use in Accountancy.
After browsing this lesson, you shall be ready to understand the subsequent Fundamental Accounting Assumptions: Going Concern, Consistency, Accrual