May 24, 2022/ Steven Bragg
The unit of measure concept is a standard convention used in accounting, under which all transactions must be consistently recorded using the same currency. For example, a business maintaining its records in the United States would record all of its transactions in U.S. dollars, while a German company
would record all of its transactions in Euros. If a transaction involves receipts or payments in a different currency, the amount is converted to the home currency used by an organization before being recorded. Without a common unit of measure, it would be impossible to produce financial statements. Accountants' Guidebook Bookkeeper Education Bundle Bookkeeping Guidebook What Is Accounting Measurement?Accounting is often measured in terms of money. For example, when a company records weekly sales at $10,000, the same company could record those transactions in terms of units sold; for instance, 5,000 units (of $2.00 products). Accounting measurement is the computation of economic or financial data in terms of money, hours, or other units. The method used in accounting measurement helps compare and evaluate accounting data. When a company uses standard accounting measurements, it becomes easier to compare certain variables over specific time frames and therefore allows a company to better understand how it operates. This could include units sold, unit revenues, hours worked, cost per hour, etc. It also helps investors and analysts compare one company to another by digging into exactly how certain accounting information is represented. Key Takeaways
Understanding Accounting MeasurementAccounting is often quantified in terms of money but can also be recorded in terms of alternative units, number of labor hours, number of jobs created, etc. Different accounting measurements provide different views on the overall state of a corporation. By using a variety of different accounting measurements, a person can gain a more comprehensive perspective of a company's operations and more easily compare them with those of other companies. Generally accepted accounting principles (GAAP) does not specifically state accounting measurement standards, but it does specify the types of accounting methods that need to be used. A close concept to accounting measurement is that of the unit of measure concept. This states that all reported data presented in a currency must be consistently reported in that same currency, regardless of the currency the business has been transacted in. For example, if some business is transacted in Euros, but the company reports in dollars, then it must convert the Euros into dollars when reporting. Example of Accounting MeasurementTwo companies have weekly sales of $20,000, but Company ABC achieves this with four salespeople and Company XYZ achieves it with eight. In this case, Company ABC's sales team is much more productive, bringing in $5,000 per salesperson per week versus only $2,500 per salesperson per week for Company XYZ. On the other hand, if Company ABC has a total of 100 employees and Company XYZ has a total of 50, then Company A is achieving only $200 per employee ($20,000/100) and Company XYZ is achieving $400 per employee ($20,000/50). This can suggest that Company ABC has high administrative costs or that Company XYZ is a more efficient business. The use of these different units of measure are examples of how accounting measurements provide further insight into a company. It allows investors and analysts to understand what the surface information really depicts. All Key Points are pulled from the end of each chapter in the text so you an review them online.
Accounting is an information system that provides reports to stakeholders about the economic activities and condition of a business. Accounting is the "language of business."
Ethics are moral principles that guide the conduct of individuals. Proper ethical conduct implies a behavior that considers the impact of one's actions on society and others. Sound ethical principles include (1) avoiding small ethical lapses, (2) focusing on your long-term reputation, and (3) being willing to suffer adverse personal consequences for holding to an ethical position.
Accountants are engaged in either private accounting or public accounting. The two most common specialized fields of accounting are financial accounting and managerial accounting. Other fields include cost accounting, environmental accounting, tax accounting, accounting systems, international accounting, not-for-profit accounting, and social accounting.
Financial accountants follow generally accepted accounting principles (GAAP) in preparing reports so that stakeholders can compare one company to another. Accounting principles and concepts develop from research, accepted accounting practices, and pronouncements of authoritative bodies. Currently, the Financial Accounting Standards Board (FASB) is the authoritative body having the primary responsibility for developing accounting principles. The business entity concept views the business as an entity separate from its owners, creditors, or other stakeholders. The business entity limits the economic data in the accounting system to that related directly to the activities of the business. The cost concept requires that properties and services bought by a business be recorded in terms of actual cost. The objectivity concept requires that the accounting records and reports be based upon objective evidence. The unit of measure concept requires that economic data be recorded in dollars.
The resources owned by a business and the rights or claims to these resources may be stated in the form of an equation, as follows: Assets = Liabilities + Owner's Equity
All business transactions can be stated in terms of the change in one or more of the three elements of the accounting equation. That is, the effect of every transaction can be stated in terms of increases or decreases in one or more of these elements, while maintaining the equality between the two sides of the equation.
The principal financial statements of a proprietorship are the income statement, the statement of owner's equity, the balance sheet, and the statement of cash flows. The income statement reports a period's net income or net loss, which also appears on the statement of owner's equity. The ending owner's capital reported on the statement of owner's equity is also reported on the balance sheet. The ending cash balance is reported on the balance sheet and the statement of cash flows.
The ratio of liabilities to owner's equity is useful in analyzing the ability of a business to pay its creditors. The lower the ratio, the better able the business is to withstand poor business conditions and still fully meet its obligations to creditors. What concept requires that economic data be recorded in dollars?The unit-of-measure concept requires that economic data be recorded in dollars.
Which of the following is a unit of measure for accounting transactions?Accounting measures a business transaction in terms of monetary units. Accounting has a money measurement concept which states that all the transactions must be recorded in terms of a specific currency. This term in business is money.
What concept requires a company to report its economic activity?The economic entity principle states that the recorded activities of a business entity should be kept separate from the recorded activities of its owner(s) and any other business entities.
What is a concept of accounting that determines the amount initially entered into the accounting records for purchases?Cost concept. A concept of accounting that determines the amount initially entered into the accounting records for purchases.
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The unit of measurement concept requires that economic data be recorded in dollars.
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