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CS Executive · Corporate Accounting and Financial Management · Introduction to Accounting

Accounting information is said to be limited to transactions that can be expressed in money. Which consequence follows from this feature?

Because accounting records only transactions measurable in money, qualitative factors like employee skill, loyalty and management quality are not shown as assets in the books. This is a recognised limitation of accounting; it does not mean assets are valued at market value or that profit equals cash.

  1. AThe skill and loyalty of a company's workforce are not recorded as assets in the booksCorrect
  2. BEvery asset is always recorded at its current market value
  3. CProfit measured for a year equals cash generated in that year
  4. DNon-monetary events are valued at the owner's estimate

Explanation

Only events measurable in money are recorded, so items such as employee skill, goodwill built internally and management quality do not appear in the books. Profit need not equal cash under the accrual basis, and assets are not generally carried at market value.

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