Question

Which Accounting concept answers that all business transactions must be in terms of
money? Explain the concept.
(See lesson-2​

Answer 1

Answer:

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Answer 2

ANSWER :

The Accounting Concept answers that all business transactions must be in terms of money is Money Measurement Concept.

EXPLANATION :

❖ Money Measurement Concept :-

• According to Money Measurement Concept, only those events which are capable of being expressed in terms of money are recorded in the books of account. The accounting system uses money as its basic unit of measurement. Money is the common unit which enables various things of diverse nature to be added up together and dealth with. Only an event which can be expressed in terms of money is recorded in accounting. If an event, whatever it is important for the business, can not be measured in terms of money, that event will not be recorded in the books of accounts. This concept operates on the assumption that the value of money remains constant throughout the accounting period. The effect if inflation or deflation on the value of money is completely ignored.

❖ Importance of the Money Measurement Concept :-

• [1] Evaluation of divergent items into comoon denominator : Money is the common measuring unit. Since the Money Measurement Concept states that all business transactions must be in terms of money, it makes the recording and comparison possible. Hence, it gives a complete picture of Assets, Liabilities, Incomes as well as Expenses of a business enterprise.

• [2] Medium of communication : As per the Money Measurement Concept, all the business transactions are recorded in terms of money and hence this concept serves as the communication process of the activities of a business firm.

• [3] Valuation of Assets and Liabilities : Money Measurement Concept helps in the process kf valuation of Assets and Liabilities. As the values of assets and liabilities of a business concern can be converted into monetary units, the Total Assets and the Total Liabilities can be computed.