how is money used as a unit of measure
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A unit of account in economics is a nominal monetary unit of measure or currency used to represent the real value (or cost) of any economic item; i.e. goods, services, assets, liabilities, income, expenses. It is one of three well-known functions of money.[1] It lends meaning to profits, losses, liability, or assets.
A unit of account in financial accountingrefers to the words that are used to describe the specific assets and liabilities that are reported in financial statements rather than the units used to measure them.[2] Unit of account and unit of measure are sometimes treated as synonyms in financial accounting and economics.[2]
Historically, prices were often given in a dominant currency used as a unit of account, but transactions actually settled by using a variety of coins that were available, and often goods, all converted into their value in the unit of account. Many international transactions continue to be settled in this way, using a national value (most often expressed in the US dollar or euro) but with the actual settlement in something else.
The unit of account in economics (unit of measure in accounting) suffers from the pitfall of not being stable in real value over time because money is generally not perfectly stable in real value during inflation and deflation. Inflation destroys the assumption that the real value of the unit of account is stable which is the basis of classic accountancy. In such circumstances, historical values registered in accountancy books become heterogeneous amounts measured in different units. The use of such data under traditional accounting methods without previous correction often leads to invalid results.[3]
All monetary units of measure, e.g., US dollar, euro, yen, yuan, ruble, peso, PKR, INR etc. (all fiat currency units) are assumed to be perfectly stable in real value during non-hyperinflationary conditions under traditional Historical Cost Accounting in terms of which the stable measuring unit assumption is applied. The Daily Consumer Price Index(Daily CPI) – or a monetized daily indexed unit of account – is generally used to index monetary values on a daily basis when it is required to maintain the purchasing power or real value of monetary values constant during inflation and deflation.
A unit of account in financial accountingrefers to the words that are used to describe the specific assets and liabilities that are reported in financial statements rather than the units used to measure them.[2] Unit of account and unit of measure are sometimes treated as synonyms in financial accounting and economics.[2]
Historically, prices were often given in a dominant currency used as a unit of account, but transactions actually settled by using a variety of coins that were available, and often goods, all converted into their value in the unit of account. Many international transactions continue to be settled in this way, using a national value (most often expressed in the US dollar or euro) but with the actual settlement in something else.
The unit of account in economics (unit of measure in accounting) suffers from the pitfall of not being stable in real value over time because money is generally not perfectly stable in real value during inflation and deflation. Inflation destroys the assumption that the real value of the unit of account is stable which is the basis of classic accountancy. In such circumstances, historical values registered in accountancy books become heterogeneous amounts measured in different units. The use of such data under traditional accounting methods without previous correction often leads to invalid results.[3]
All monetary units of measure, e.g., US dollar, euro, yen, yuan, ruble, peso, PKR, INR etc. (all fiat currency units) are assumed to be perfectly stable in real value during non-hyperinflationary conditions under traditional Historical Cost Accounting in terms of which the stable measuring unit assumption is applied. The Daily Consumer Price Index(Daily CPI) – or a monetized daily indexed unit of account – is generally used to index monetary values on a daily basis when it is required to maintain the purchasing power or real value of monetary values constant during inflation and deflation.
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Money is a unit of measure that has a certain value to it. It could be terms of price of goods, commodities or service in the economy. It is also used for evaluating and measuring the profits and loss of business.
Explanation:
- Money as a unit of measure has the value of purchasing power in the economy. Money is assessed in regards to book of accounts by a business organisation or it is used for making a transaction by the company to purchase items.
- Money is seen as 'income' or 'wealth' or it is measured as price of goods in the markets. It is measured as a 'real value' of a commodity, the expenses incurred or seen as 'liability' or 'asset' in regards to business transactions
- Money is also used by people to store as savings for their future. It helps the people in times of recession where they can use the money for their benefits. It is used by people for comparing the value of goods through their prices.
To know more about unit of measure
Which function of money states that goods and services are measurable in terms of money? a) Medium of Exchange b) Unit of accounts c) Standard of deferred payment d) None of these
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