Money Measurement Concept or Common Denominator Concept :
The money Measurement Concept means that, in accounting, a record is made only of those transactions or events which can be expressed in terms of money. Non-monetary events (i.e., events which cannot be expressed in terms of money) like the retirement of the managing director of a concern, the good quality of the products produced by the concern, the team-work that is found in the concern, the poor health of the production manager of the concern, etc., are not recorded, though they are also material events, as they cannot be measured and expressed in terms of money.
The money Measurement Concept has one great advantage. It helps a concern to express items of diverse nature, such as bank balance, stock-in-trade, furniture, machinery, .buildings and so on in terms of a common denominator, viz., money, and add them up for the purpose of knowing the total worth of assets at any particular time. But for this concept, adding up the diverse items, which exist in different forms, will not be possible. For instance, if a concern has bank balance of Rs.10,000, 1,000 tonnes of stock-in-trade, 5 type-writers and 10 steel cabinets, 5 machines and 2 buildings, in the absence of a common denominator, viz., money, these diverse items cannot be added up to give any meaningful and useful figure. But if they are expressed in terms of money as bank balance of Rs.10,000, stock-in-trade of Rs.50,000, furniture of Rs.38,000 (type-writers of Rs.20,000 + steel cabinets of Rs.18,000), machinery of Rs.50,000 and buildings of Rs.1,00,000, it is possible to add up the values of all these assets and to state the total worth of the assets of the business as Rs.2,48,000.
However, the money Measurement Concept has one serious limitation. As only monetary transactions are recorded in account books, and no record is kept of non-monetary events, accounting records do not give a complete picture of all the happenings in a concern.
The money Measurement Concept means that, in accounting, a record is made only of those transactions or events which can be expressed in terms of money. Non-monetary events (i.e., events which cannot be expressed in terms of money) like the retirement of the managing director of a concern, the good quality of the products produced by the concern, the team-work that is found in the concern, the poor health of the production manager of the concern, etc., are not recorded, though they are also material events, as they cannot be measured and expressed in terms of money.
The money Measurement Concept has one great advantage. It helps a concern to express items of diverse nature, such as bank balance, stock-in-trade, furniture, machinery, .buildings and so on in terms of a common denominator, viz., money, and add them up for the purpose of knowing the total worth of assets at any particular time. But for this concept, adding up the diverse items, which exist in different forms, will not be possible. For instance, if a concern has bank balance of Rs.10,000, 1,000 tonnes of stock-in-trade, 5 type-writers and 10 steel cabinets, 5 machines and 2 buildings, in the absence of a common denominator, viz., money, these diverse items cannot be added up to give any meaningful and useful figure. But if they are expressed in terms of money as bank balance of Rs.10,000, stock-in-trade of Rs.50,000, furniture of Rs.38,000 (type-writers of Rs.20,000 + steel cabinets of Rs.18,000), machinery of Rs.50,000 and buildings of Rs.1,00,000, it is possible to add up the values of all these assets and to state the total worth of the assets of the business as Rs.2,48,000.
However, the money Measurement Concept has one serious limitation. As only monetary transactions are recorded in account books, and no record is kept of non-monetary events, accounting records do not give a complete picture of all the happenings in a concern.
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