Monetary Unit Principle

The monetary unit principle of accounting states that all the transactions must be recorded in the form of currency. In other words a business can only record those transactions that involve the recording of the transactions in the form of any currency. All those transactions or other items that cannot be quantified are not advised to be recorded in accounting. For example employee skill level, the quality of service, the readiness of response and other items that are not measureable cannot be recorded in accounting. The monetary unit principle also states that the value of the currency in which a business is recording its transactions must remain stable over a given period of time. However this statement cannot be true in terms of current inflation situations where the value and price of assets and equipments purchased over time does not remain the same after a span of time.

This means that an amount of money that was invested 20 or 25 years ago has the greater value and greater investment worth as compared to the same amount of money invested in the same industry today. This is due to the factor of inflation that has considerably decreased the value of the money.

Other names used to explain monetary unit principle are the monetary unit concept or monetary unit assumption.

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