Detailed explanation
Monetary unit principle states business events must be measured in monetary terms and recorded in the accounting record. If the business cannot allocate monetary units for the specific event/transactions, it should not be recorded in the financial statement.
For instance, your team motivation, leadership charisma, management expertise, customer experience, and service quality can not be recorded in the financial statement because these aspects can not be measured in monetary terms.
Monetary units refer to measuring transactions in functional currency. Functional currency is any currency prevailing in the primary economic environment.
On the other hand, presentation currency is the one used for presenting financial statement.
The International Accounting standard does not require the use of any specific presentation currency. However, all transactions must be presented in a single currency when generating a specific set of financial statements. Transactions in other currencies must be translated to the presentation currency on the date of the financial statement. So, all transactions can be presented consistently.
Conclusion
Per the monetary unit principle, the events/transactions must be measured in monetary/currency units and recorded in the financial statement. On the other hand, if events can not be measured in monetary terms, they should not be recorded in the financial statement. For instance, your team motivation, service quality, and teamwork can not be measured in monetary value and should not be recorded in the financial statement.
Daniyal is passionate about simplifying complex accounting concepts, Founded Accounting with Clarity to share practical insights, technical guidance, and real-world finance advice that empower professionals and business owners to make informed decisions with confidence.