Monetary unit assumption

Monetary Unit Assumption

The accounting principle assuming that all transactions can be measured and recorded in monetary terms, and that the value of the currency remains relatively stable over time.

For instance, when a company purchases equipment with a 20-year useful life, it records the transaction based on the monetary value at purchase date, not attempting to adjust for potential future inflation or currency fluctuations.

This assumption allows businesses to add, subtract, and compare transactions from different periods as if the purchasing power of money remains constant. In economies with significant inflation, supplementary disclosures or inflation-adjusted accounting may be necessary to provide more meaningful information.