In the matter of preparation of financial accounts, information is given in monetary terms. A business deals, say, with X number of machines and equipment, Y tonnes of steel, Z kg of tin, F cubic meters of a certain acid, P lakhs of rupees, etc. Since the item as well as unit of measurement are different in each, in order to express the gross involvement of the business in this aspect, the monetary equivalent of all these items is employed to homogenize these items and to express the gross involvement too monetarily thereby. Such a facility, however, cannot encompass, or adequately express or convey, non-monetary attributes - like quality of products, production strategies, management ability, etc. Since interpersonal equations amongst the managerial cadre officials, the probity, integrity and dedication of staff as individuals, etc. cannot be reflected monetarily, this concept is an incomplete guidance to this extent. Also, changes in rates of exchange between currencies, trends of inflation with time within the country, effects of regional disparities within the country - are other vitiating reasons in the soundness of this concept. Transactions are recorded in monetary terms at their value at the time they take place and changes in purchasing power of money are not reflected in financial accounts. The accurate worth of business is not reflected by the accounting statements for at least these two reasons.
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