Explore BrainMass

The Stable-Monetary Unit Assumption

The stable-monetary unit assumption has two parts. The first part requires that transactions must be able to be expressed in form of a currency. That is, non-quantifiable gains such as an employee's skill level can not be reported on the financial statements. The second part assumes that the value of the currency in which transactions have been originally reported remains constant over time. For example, we know that a dollar invested 30 years ago is worth considerable more than a dollar invested today; however, we do not make changes to these amounts on the financial statements as a result of inflation. This speaks to the cost principle of accounting that requires most assets and liabilities be reported at historical cost. 

According to the FASB Concept Statement No. 5, "The monetary unit or measurement scale in current practice in financial statements is nominal units of money, that is, unadjusted for changes in purchasing power of money over time. The Board expects that nominal
units of money will continue to be used to measure items recognized in financial statements".1

1. FASB CON5-3