- Unit of account
A unit of account is a standard monetary unit of measurement of value/cost of goods, services, or assets. It is one of three well-known functions of money. It lends meaning to profits, losses, liability, or assets.
The accounting monetary unit of account suffers from the pitfall of not being a stable unit of account over time. Inflation destroys the assumption that money is stable which is the basis of classic accountancy. In such circumstances, historical values registered in accountancy books become heterogeneous amounts measured in different units. The use of such data under traditional accounting methods without previous correction often leads to invalid results.
A standard unit of account allows meaningful interpretation of prices, costs, and profits, so that an entity can monitor its own performance and its shareholders can make sense of its past performance and have an idea of its future profitability. In modern economies, money in the form of currency usually serves the role of the standard unit of account. The use of money, under conditions of price stability, vastly improves the efficiency of market economies.
Historic examples of units of account include the livre tournois, used in France from 1302 to 1794 whether or not livre coins were minted. In the 14th century Naples used the grossi gigliati, and Bohemia used the Prague groschen.
At any one time there might be two or three units of account in one region based on the local base, silver and sometimes gold coins, and each often expressed in L.S.D units in ratio 240:12:1. The Florentine gold florin, the French franc and the electoral rheingulden all became pounds (240 denari) of account. Units of account would often survive over 100 years despite the original coins changing composition and availability (e.g. the Castilian maravedi).
A modern unit of account is the European Currency Unit, used in the European Union from 1979 to 1998; its replacement in 1999, the euro, was also just a unit of account until the introduction of notes and coins in 2002.
The use of a unit of account in financial accounting, according to the American business model, allows investors to invest capital into those companies that provide the highest rate of return. The use of a unit of account in managerial accounting enables firms to choose between activities that yield the highest profit.
In economics, a standard unit of account is used for statistical purposes to describe economic activity. Indexes such as GDP and the CPI are so broad in their scope that compiling them would be impossible without a standard unit of account. After being compiled, these figures are often used to guide governmental policy; especially monetary and fiscal policy.
In calculating the opportunity cost of a policy, a standard unit of account allows for the creation of a composite good. A composite good is a theoretical abstraction that represents an aggregation of all other opportunities that are not realized by the first good. It allows an economic decision's benefits to be weighed against the costs of all other possible goods in that society, without having to refer to any directly. Often, this is most easily accomplished with money.
- ^  The Taxation of Income from Business and Capital in Colombia: Fiscal Reform in the Developing World By Charles E. McLure, John Mutti, Victor Thuronyi, George R. Zodrow, Contributor Charles E. McLure, Published by Duke University Press, 1990, ISBN 0-8223-0925-4, 9780822309253, Page 259 : Inflation destroys the assumption that money is stable which is the basis of classic accountancy. In such circumstances, historical values registered in accountancy books become heterogeneous amounts measured in different units. The use of such data under traditional accounting methods without previous correction, makes no sense and leads to results that are void of meaning.(Massone, 1981a. p.6)
- ^ Peter Spuffords (1986). "Handbook of medieval exchange; Introduction". http://www.philipresheph.com/a424/study/exchange.doc.
- Linguistic and Commodity Exchanges by Elmer G. Wiens. Examines the structural differences between barter and monetary commodity exchanges and oral and written linguistic exchanges.
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unit of account — The type or size of packing in which the goods are sold, for example packets of 20 cigarettes. HM Customs & Revenue Glossary * * * unit of account ˌunit of acˈcount noun units of account PLURALFORM [countable] 1. ACCOUNTING the unit of money used … Financial and business terms
unit of account — a monetary unit or measure of value (as a coin) in terms of which accounts are kept and values stated * * * unit of account noun A monetary unit not necessarily corresponding to any actual denomination of currency and in certain cases of variable … Useful english dictionary
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unit of account — unit of currency that is used as a uniform basis for calculating prices … English contemporary dictionary
unit of account — 1) A function of money enabling its users to calculate the value of their transactions and to keep accounts. 2) The standard unit of currency of a country. 3) An artificial currency used only for accounting purposes … Accounting dictionary
unit of account — 1) A function of money enabling its users to calculate the value of their transactions and to keep accounts. 2) The standard unit of currency of a country. 3) An artificial currency used only for accounting purposes … Big dictionary of business and management
unit of account — /ˌju:nɪt əv ə kaυnt/ noun a standard unit used in financial transactions among members of a group, such as SDRs in the IMF … Dictionary of banking and finance
Indexed unit of account — When an indexed unit of account is used in contracts, payments are indexed to the price level in such a way that changes in the inflation rate have no effect on the real value of payments. Non indexed units, such as contracts written in currency… … Wikipedia
European Unit of Account 9 — The European Unit of Account 9 (E.U.A. 9) is a bond market unit. It has ISO 4217 code XBC … Wikipedia
European Unit of Account 17 — The European Unit of Account 17 (E.U.A. 17) is a bond market unit. It has ISO 4217 code XBD … Wikipedia