What is the Unit of Measure Concept?

The unit of measure concept is a standard convention used in accounting, under which all transactions must be consistently recorded using the same currency. For example, a business maintaining its records in the United States would record all of its transactions in U.S. dollars, while a German company would record all of its transactions in euros. If a transaction involves receipts or payments in a different currency, the amount is converted to the home currency used by an organization before being recorded. Without a common unit of measure, it would be impossible to produce financial statements.

Example of the Unit of Measure Concept

Heather Electronics, a company based in Texas, buys computer components from suppliers in Japan and Germany. Even though the company receives invoices in Japanese yen and euros, it must convert all foreign currency amounts into U.S. dollars when recording the transactions in its accounting records. For instance, if Heather purchases $50,000 worth of components from a German supplier, it will translate the euro invoice into an equivalent dollar amount based on the current exchange rate and then record the purchase in dollars. By consistently using U.S. dollars as the unit of measure, the company ensures that its financial statements are uniform, comparable, and compliant with U.S. accounting standards.

Advantages of the Unit of Measure Concept

There are several key advantages of the unit measure concept that make it a cornerstone of modern accounting systems. They are as follows:

Comparable financial statements. By having organizations in the same countries report their results in the same currency, it is easier to compare their results and financial positions.
Standardization of transaction outcomes. By recording all transactions in one currency, it is easier to compare the outcomes of different transactions, which is useful for profitability analyses.