Concepts and Conventions : Money Measurement Concept

Business Transactions - Accounting Transactions

Mr. Oberoi's Accounting Record

Kallu Singh started recording all the transactions relating to the business in the accounting record (a record with ruled pages) as asked by his employer.

A record of a days Business Transactions as seen in Mr. Oberoi's Accounting Record

S.No Date Transaction
01. 10/06/20_5 Came to the shop at 5 : 30 am
02. " Opened the shop and cleaned the premises by 6:30 a.m
03. " Had a cup of tea, spent 1.50 for it
04. " Verified stock and arranged them neatly.
05. " Mr. Subba Rao came. He bought 1 kg brinjals for 10.
06. " Mr. Raju came. He enquired about supply for his daughter's marriage party.
07. " Mrs. M came. She paid 20, the amount due for the stock purchased the previous day.
08. " Unloaded the vegetables brought by the Proprietor.
09. " Paid 10 to the rickshaw puller who brought the vegetables.
10. " Received 250, the balance from the amount taken by the proprietor while going for purchases.

Some of the recordings seem to be "Not Necessary"

All the above recordings made by Mr. Kallu Singh are no doubt business transactions as they relate to the business and its conduct. However if we go through the list we do find that there are certain entries in the list which seem unnecessary.

The fact that the employee opened the shop at 5:30 may be useful information in general. It enables Mr. Oberoi to know the time Mr. Kallu Singh is coming early in the morning. He can make a random check of the timing by asking someone else to just watch the time the shop is being opened and verifying the time Mr. Kallu Singh has recorded. This enables him to ensure that his shop is being opened early in the morning at the intended time.

But the fact that Mr. Kallu Singh has opened the shop early in the morning will not result in Mr. Oberoi, either gaining or losing directly in monetary/value terms. If we are asked to assess the transaction value, we will not be able to. Mr. Oberoi, may benefit in terms of the reputation the organisation may gain i.e. as being recognised as an early starter, punctual, etc., but this cannot be expressed in value terms.

All Business Transactions are not Accounting Transactions

Every transaction relating to a business can be called a business transaction. But only those transactions that can be assessed/expressed in value/monetary terms are capable of being called Accounting Transactions.

Business transactions which cannot be assessed/expressed in value/monetary terms are not to be considered for accounting purposes.

A record of the days Accounting Transactions as seen in Mr. Oberoi's Accounting Record

S.No Date Transaction
03. 10/06/20_5 Had a cup of tea, spent 1.50 for it
05. " Mr. Subba Rao came. He bought 1 kg brinjals for 10.
07. " Mrs. M came. She paid 20, the amount due for the stock purchased the previous day.
09. " Paid 10 to the rickshaw puller who brought the vegetables.
10. " Received 250, the balance from the amount taken by the proprietor while going for purchases.

Practice Problems - Money Measurement Concept

Concepts and Conventions

Accounting is based on certain concepts and conventions.

Concept

  • An abstract or general idea inferred or derived from specific instances
  • Idea
  • notion
  • thought
  • perception

Convention

  • A way in which something is usually done, especially within a particular area or activity.
  • custom
  • tradition
  • practice
  • usage

Without being conscious that we have been dealing with aspects relating to a concept, we have dealt with one of the simplest and fundamental concepts of accounting.

It drives us to the understanding - all business transactions do not form accounting transactions

Money Measurement Concept

Only those transactions which are capable of being measured in value or monetary terms are to be considered for accounting.