A monetary item is an asset or liability that conveys a right to receive or deliver either a fixed or determinable number of units of currency. Monetary items continue to be convertible into the same amount of currency over time. Examples of monetary items are:
When monetary assets are held, their purchasing power tends to decline as inflation reduces their value. Conversely, when monetary liabilities are held, their purchasing power increases, because they can be paid off with funds that have declined in value because of the effects of inflation.
Nonmonetary items tend to be convertible into varying amounts of money, based on changes in supply and demand and the presence of obsolescence. For example, a monetary item such as a certificate of deposit is convertible into $1,000, while a vehicle will likely decline in value over time as it ages.