In this clip, we will talk about money measurement concept
What is this money measurement concept?
And I am saying that this is one of the most important
concepts of accounts
Without this, accounting cannot start
This is the concept that makes the basis of the start of
accounts
Accounts start with any transaction
Then its general entry, then ledger, then trial and error,
then trading panel, balance sheet
So friends, what is a transaction?
It depends on the money measurement concept
If there is no transaction, then your general entry,
ledger, etc.
So let's see what is the money measurement concept
It can be recorded in the books of accounts
We will do its general entry, post it in the accounts, put
its effect on the trading panel, balance sheet
Buying raw metal is 5000
This is a transaction of an entity
And its monetary value, money measurement value is also 5000
We will record this too
Rent paid is 2000
This is a transaction, its monetary value is 2000
We will record this too
As an example
We have the next example
Employees strike in the business
Strike by employees in the business
Is this a transaction or not?
First tell me this
Sir, is it a transaction or not?
How do we find out?
Is there any transaction or not?
To find out this, friends, we see
Is the activity affecting the financial position of the
business or not?
So you guys see
If employees leave the job and go
Then it will affect the financial position of the business
Yes, so it becomes a transaction
And if it becomes a transaction, then its general entry,
ledger, trial and error, trading panel, balance sheet
Everything should work
Yes, but it will not
Why? Because we don't have monetary value
We know this is a transaction
Leaving the job by employees
But this transaction will affect the business
We also know this
But How much will the effect be?
What will be its monetary value?
How much will be the exact effect of the effect?
We do not know this
That's why we will not record it
So transactions whose monetary value is
Will be recorded in the same account
Money measurement concept
Money measurement concept says
If something, an event, an activity
Satisfies the definition of the transaction
That is, the activity of the business
Positive or negative effect on the financial position
Even after that
If we do not know its value
Then we will not record it
We will not make it a part of the accounting
And if we are in India
Then the monetary value will be in rupees
In the US, it will be in dollars
In Australia, it will be in Australian dollars
In England, it will be in pounds
Right? That's how we have it
So this was the money measurement concept
Let's move a little further
Next we have
Accounting period concepts
Accounting period concept
States that
All the transactions recorded in the books of account
Should be based on the assumption that
Profit on these transactions
Is to be ascertained for a specific period
Hence this concept
Says that the balance sheet and profit and loss
Account of a business
Should be prepared at the regular intervals
This is important for different
Purposes like calculation of profit
And loss, tax calculation, ascertaining
Financial position
Also this concept assumes that business
Indefinite life is divided into two parts
These parts are termed as accounting period
It can be one month, three months
Six months, etc.
Usually one year is
Considered as one accounting period which may be
A calendar year or a financial year
The year that begins on January 1
And ends on 31st January
No, 31st December
There is a slight correction, 31st December is termed as
Calendar year whereas the year that
Begins on 1st April and ends on 31st March
Is termed as
Financial year
Let me explain it in Hindi
It has a very simple meaning
Let me take an example
Listen carefully
You and your friend
Received an invitation
From your third friend
He lives far away
He met him many years ago
Today he is getting married
And he lives far away
He sent you an invitation
He gave you a card on whatsapp
He didn't call you much
But you are also a player
He called a liar and you left
But you
Both took out the car
And you didn't visit the place
Where the wedding is taking place
Where is the exact location
Forget about Google map for once
Google map is not present on this earth
What will you do?
You have a little idea
That there is a place in Delhi
So you reached Delhi once
When you will enter Delhi
Tell me one thing
I will give you two options
You keep driving
Don't ask anyone where to go
Will you reach the right place
Or second option
Keep asking people
Where is that location
We have to go to our friend's wedding
So that you keep getting the right direction
And you keep going in the right direction
If you reach somewhere wrong
Come back on the right road
This is better
This is also applicable to business
In business
A person started
On 1st April
He started in 1st April
And it's been 15 years
For 15 years
He didn't see what is happening in business
He didn't do accounting
He didn't try to know
How much is the sale, how much is the purchase
He just kept doing like this
At the end of 15 years
He came to know that he is in a loss of 1 crore
When the debt started increasing
People's demands started increasing
He found that there is no money around
To pay them
So he said that he will have to do accounting
Then he did accounting
He is in a loss of 1 crore
What was his mistake
He started the business
He should have checked in between
When the loss of 1 lakh was there, he should have checked
He should have stopped
The loss of 1 crore didn't happen in a day
It started increasing slowly
This is the accounting period concept
Accounting period concept says
That you don't do accounting
That you are doing it once in 10-15 years
You are doing a lot of sour period accounting
Accounting should be done on regular intervals
Regular intervals
Year after year
How much is the regular interval
If there is a very big business
It can do its accounting every month
Some can do it in 3 months, some in 6 months
But maximum and feasible
And flexible is considered to be a good 1 year period
Generally 1 year period is considered to be a regular
interval
Stay in every 1 year
Do accounting
See if your business is running in profit
Is running in loss
So that
After every 1 year
You get to know about a good business position
And you can take decisions accordingly
This is the accounting period concept
Accounting will be in regular periods
In regular intervals
And accounting is not like that
Now That period is 1 year
Sir, when will that 1 year start and end?
In India, if you are running a corporate
Company The company has made it mandatory
Your year
But if there is any other business
It can follow 1st January to 31st December
It can also follow the calendar year
To do accounting
There is no such restriction on the individual or
partnership firm
Okay Okay sir
So all these things were written in English
This is the accounting period concept
Thank you