Definition of Monetary item:
A monetary item is an asset or liability carrying a value in dollars that will not change in the future. These items have a fixed numerical value in dollars, and a dollar is always worth a dollar. The numbers do not change even though the purchasing power of a dollar can potentially change.
Monetary assets (such as cash and accounts receivable) and monetary liabilities (such as notes and accounts payable) that have a fixed exchange value unaffected by inflation or deflation. Holding monetary assets when prices are rising results in loss of purchasing power because the real value of currency is falling. Conversely, holding monetary liabilities during the same period results in gain in purchasing power because they can be repaid in a currency with real value lower than the currency in which they were incurred.
The most common monetary item is simply cash, whether a debt owed by a company (liability), a debt owed to it (asset) or a pile of cash in its account (asset). $100,000 of cash today will still be worth $100,000 a year later. If a company owes $40,000 to a supplier for goods delivered, that line item is recorded at $40,000 even though, when the company pays the bill three months later, the cost of those same goods has increased $3,000 because of inflation. .
How to use Monetary item in a sentence?
- Monetary assets are never restated on the financial statements. .
- Nonmonetary items cannot be converted to cash quickly, such as property, equipment, and inventory. .
- Monetary items are assets or liabilities that have a fixed value, such as cash or debt. .
- These items, such as $25,000 in cash, have a fixed value although inflation and other macroeconomic factors might affect purchasing power. .
Meaning of Monetary item & Monetary item Definition