Standard or Scale of Measurement:-Meaning,Understanding,Example,Money Measurement Concept (Commerce Achiever)

Standard or Scale of Measurement:

Money is the scale of measurement is Accounting. It takes the shape of currency ruling in a country. So Money as a unit of measurement lacks universal applicability across boundary of a country unless a common currency is in vogue. Since rate of exchange fluctuates between two currencies, Money as a measurement scale also becomes volatile.

Suppose a businessman in India took loan of  70,000 from a businessman, he would enter the transaction in his books in terms of Rupees taking into consideration the exchange rate at that time, say  1 =  50, as  35,00,000. Afterwards the exchange rate changes to  1 =  60 changing the loan amount to  42,00,000.

What is the Money Measurement Concept?

The money measurement concept states that a business should only record an accounting transactions if it can be expressed in terms of money. This means that the focus of accounting transactions is on quantitative information, rather than on qualitative information. Thus, a large number of items are never reflected in a company’s accounting records, which means that they never appear in its financial statements. Examples of items that cannot be recorded as accounting transactions because they cannot be expressed in terms of money include:

• Employee skill level

• Employee working conditions

• Expected resale value of a patent

• Value of an in-house brand

• Product durability

• The quality of customer support or field service

• The efficiency of administrative processes

All of the preceding factors are indirectly reflected in the financial results of a business, because they have an impact on either revenues,expenses,assets,or liabilities. For example, a high level of customer support will likely lead to increased customer retention and a higher propensity to buy from the company again, which therefore impacts revenues. Or, if employee working conditions are poor, this leads to greater employee turnover, which increases labor-related expenses.