Theory Base of Accounting — Account STD 11 Commerce — Question

Money Measurement Concept: According to the Money Measurement Principle, transactions and events that can be measured in money terms are recorded in the books of account of the enterprise. Staning different y, money is the common denominator in recording and reporting transactions. This principle suffers from two major limitations:

1. Transactions and events that cannot be measured in money terms are not recorded in the books of account, howsoever important they may be to the enterprise. For example, human resources with the enterprise are important to the enterprise but are not reflected in the financial statements because they cannot be measured and expressed in money terms.
2. The value of money is considered to have static value as the transactions are recorded at the value on the transaction date.