Introduction
Monetary items are those assets or liabilities whose value is fix in terms of a currency/money and can be easily convert into cash means it have high liquidity. So here is examples include cash, accounts receivable, and accounts payable.
Non-monetary items are assets or liabilities whose value is not fixed in terms of a currency and cannot be easily converted into cash means it has low liquidity. So here are examples include inventories, property, plant, and equipment.
So these terms are commonly used to define assets and liabilities, both of which are important in financial reporting.
Monetary items
So it refers to assets or liabilities with a fixed exchange value that remains unaffected by inflation or delation. These items are readily convertible into cash or cash equivalents, and their values are relatively stable over the period.
Non-Monetary
These are those assets or liabilities whose value is subject to change based on economic conditions. These items do not have a fixed exchange value and can fluctuate in value depending on a variety of circumstances.
It is vital to understand the distinction between financial and non-financial items since it affects how financial statements are prepared and presented. So here is one more example, monetary items are recorded at their current values, while non-monetary items are typically recorded at their historical cost.
| Monetary Items | Non-Monetary Items |
|---|---|
| Have a fixed exchange value | Value depends on economic conditions |
| Are units of currency held | Do not involve currency |
| Include trade receivables, payables, and loans | Include assets such as property, equipment, and inventory |
| Are affected by changes in foreign exchange rates | Are not affected by changes in foreign exchange rates |
| Have a determinable number of units of currency | Do not have a determinable number of units of currency |
| Examples: Cash, bank deposits, accounts receivable, and loans payable | Examples: Property, plant, and equipment, inventory, and goodwill |
| Are easily converted into cash | Are not easily converted into cash |
| Are typically short-term assets or liabilities | Are typically long-term assets or liabilities |
| Are used to measure financial performance | Are used to measure economic performance |