Concepts and Conventions : Money Measurement Concept

Business Transactions - Accounting Transactions

Business Transaction

  • An act that is performed in relation to a business, which has its effect on the business

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. An extract of some transactions on a day is as below.

A partial record of a days Business Transactions as seen in Mr. Oberoi's Accounting Record
S.No Date Transaction
01. 10/06/_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 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 in the morning to open the shop. 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. We will not be able to assess the monetary value of the transaction. Mr. Oberoi, may benefit in terms of sreputation the organisation may gain i.e. as being recognised as an early starter, punctual, etc., but the gain cannot be expressed in value terms. The gain is only qualitative and not quantitative.

Accounting Transactions

  • Business transactions which can be assessed in value or monetary terms
A partial record of the days Accounting Transactions as seen in Mr. Oberoi's Accounting Record
S.No Date Transaction
03. 10/06/_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.

All Business Transactions are not Accounting Transactions

Every transaction relating to a business can be called a business transaction. Of those, only those transactions that can be assessed in moentary terms are capable of being called Accounting Transactions.

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

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.

Money Measurement Concept

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

This concept gives us the idea that all business transactions do not form accounting transactions

Practice Problems - Money Measurement Concept