Explain the money measurement principle of accounting.

According to the Money Measurement Concept, only those transactions are recorded in the books of accounts which can be expressed in terms of money. In other words, an event — howsoever important it may be to the business — will not be recorded unless its monetary effect can be measured with a fair degree of accuracy.

For example, the retirement of the chairman of a company cannot be recorded because it is not possible to measure the monetary effect of retirement (except in terms of gratuity and other benefits payable).

Importance — Money is a common denominator. With the help of money, diverse items such as raw materials, machinery, land and buildings, furniture and fixtures, etc., can be added together and compared. Thus, the money measurement concept helps to make accounting records homogeneous, relevant, simple and understandable.