Describe the advantages and disadvantages of the money measurement concept?

The money measurement concept states that only items that can be measured in monetary terms are included in the financial statements.

 

Advantages:

1. It makes it easier to aggregate and summarise transactions, and compare financial statements.

2. The concept is appropriate as business is about money, and it is easily understood and convenient for internal and external users of the financial statements.

Disadvantages:

1. It limits the usefulness of information in the financial statements because non-financial items are ignored (eg loyalty of workforce, management skills, size of customer base).

2. The value of money is not stable due to inflation/deflation and, if business has international transactions, the value of money fluctuates with exchange rates.

Money measurement or monetary concept states that all transaction in a business must be recorded in money terms . ADVANTAGES: - Financial statements are expressed in money terms to enable users to understand better - Enables many items to be added together in money terms which facilitie comparison of business performance and status DISADVANTAGES: - Transactions, events and facts that cannot be ignored such as business location, managerial skills, etc. - Money as a unit of measurement is unstable. Overtime, the purchasing power of money changes. The loss of purchasing power of money occurs during inflation which puts the accounting processes in controversy.