Monetary Assets

Monetary Assets

The cash in hand determines the strength of an economy.
Monetary assets have a dollar value that will not change with time. These assets have a constant numerical value. For example, a dollar is always a dollar. The numbers will not change even if the purchasing power of the currency changes.
We can understand this concept by contrasting them against a non-monetary item like a production facility. A production facility’s value – its price denoted by a number of dollars – may fluctuate in future. It may lose or gain value over the years. So a company owning the factory may record the factory as being worth $500,000 one year and $480,000 the next. But, if the company has $500,000 in cash, it will be recorded as $500,000 every year.
In other words, monetary items are just cash. It can be a debt owed by an entity, a debt owed to it, or a cash reserve in its account.
For example, if a company owes $40,000 for goods delivered by a supplier. It will be recorded at $40,000 three months later even though, the company may have to pay $3,000 more because of inflation.
Similarly, if a company has $300,000 in cash, that $300,000 is a monetary asset and will be recorded as $300,000 even when, five years later, it may be able to only buy $280,000 worth of goods compared to when it was first recorded five years ago.

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