Accounting does not record non-financial transactions because of :a)Accrual conceptb)Cost conceptc)Continuity conceptd)Money Measurement conceptCorrect answer is option 'D'. Can you explain this answer?

Question

Answer

As per the money measurement concept only those transactions which can be measured in terms of money are recorded in financial statements. Any transaction which is not convertible in monetary terms, will not be recorded in financial statements even if it effects the results of the business materiality. Therefore, non- monetary transactions are not recorded in books of accounts.

Answer

It is due to money measurement concept. According to this concept only that events are recorded in the books that we can measure in the form of money.

Answer

Money Measurement Concept

The correct answer is option 'D', which is the Money Measurement concept. This concept states that accounting only records transactions that can be expressed in monetary terms. Non-financial transactions, which cannot be quantified or measured in monetary units, are therefore not recorded in the accounting records.

Explanation:
Accounting is a system of recording, classifying, summarizing, and interpreting financial transactions and events of an organization. It follows certain principles and concepts to ensure that the financial information reported is reliable, relevant, and comparable.

The Money Measurement concept is one of the fundamental concepts of accounting. It states that accounting can only record transactions and events that can be expressed in monetary terms. This means that only those transactions that can be measured or quantified in terms of money are recorded in the accounting records.

Reason behind not recording non-financial transactions:
Non-financial transactions are those transactions that do not involve the exchange or transfer of money or monetary assets. Examples of non-financial transactions include managerial decisions, changes in management structure, employee training programs, changes in organizational culture, and other similar events.

Since non-financial transactions cannot be expressed in monetary terms, they are not recorded in the accounting records. Accounting primarily focuses on financial transactions that involve the exchange of money or monetary assets, such as sales, purchases, investments, borrowings, and payments. These transactions have a direct impact on the financial position and performance of an organization and can be measured and quantified in monetary terms.

Importance of Money Measurement concept:
The Money Measurement concept is important for several reasons:

1. Objectivity: By recording only transactions that can be expressed in monetary terms, accounting ensures objectivity in financial reporting. Monetary values are more objective and can be verified and compared across different organizations and time periods.

2. Comparability: The use of monetary values allows for the comparison of financial information. It enables stakeholders to evaluate the financial performance and position of an organization and make informed decisions.

3. Decision-making: Monetary information is crucial for decision-making purposes. It helps management, investors, creditors, and other stakeholders in assessing the financial viability and profitability of an organization.

4. Measurement of financial performance: The Money Measurement concept enables the calculation of financial ratios and indicators that assess an organization's financial performance and efficiency.

In conclusion, the Money Measurement concept in accounting states that only transactions and events that can be expressed in monetary terms are recorded in the accounting records. Non-financial transactions, which cannot be quantified or measured in monetary units, are not recorded. This concept ensures objectivity, comparability, and the ability to make informed decisions based on financial information.

Similar CA Foundation Doubts

Accounting does not record non-financial transactions because of

example of non financial transactions Related: Introduction to Accounting?

Contingent asset is not recognized in the finantial statement on the basis of . accounting concept. { A. Prudence | B. Materiality | C. Substance over form | D. Going concern }

Top Courses for CA FoundationView all

Quantitative Aptitude for CA Foundation

Accounting for CA Foundation

Business Laws for CA Foundation

Business Economics for CA Foundation

Mock Tests & Past Year Papers for CA Foundation

Top Courses for CA Foundation

Top Courses for CA Foundation

Related Content

CA Foundation Courses

Other Courses

How To Prepare?

Other Exams

Company