What does the money measurement principle state?

The money measurement principle asserts that only those transactions and events that can be expressed in monetary terms are recorded in financial statements. This principle is foundational in accounting, as it provides a clear, quantifiable basis for the financial information presented. By focusing solely on transactions that can be measured in money, it ensures that the financial statements remain objective and comparable.

This means that subjective factors such as employee satisfaction or brand reputation, which cannot be easily quantified, are not included in the financial records. The principle emphasizes the importance of monetary representation, allowing stakeholders to have a clear view of the organization's financial position based solely on quantifiable data. This approach facilitates better financial analysis and decision-making.