Monetary value definition
/What is Monetary Value?
Monetary value is the amount that would be paid in cash for an asset or service if it were to be sold to a third party. For example, tangible property, intangible property, labor, and commodities are priced at their monetary value. Monetary value is determined by the level of supply and demand for an item, and so can change over time.
Examples of Monetary Value
Here are three examples of the monetary value concept:
Purchase of equipment. A company buys machinery for $50,000. Since the cost is measurable in money, it is recorded as an asset in the books.
Employee salaries. A business pays $10,000 in wages to its employees for the month. This monetary transaction is recorded as an expense in the company’s financial statements.
Loan taken from a bank. A company borrows $200,000 from a bank. Since the loan has a specific monetary value, it is recorded as a liability in the company's balance sheet.
FAQs
How does Monetary Value Differ from Economic Value?
Monetary value is the amount assigned to an item in currency, which allows it to be recorded and compared in financial statements. Economic value reflects the overall benefit or utility that the item provides, which may not be fully captured by a monetary amount. As a result, an item’s economic value can be higher or lower than its monetary value depending on its usefulness and the circumstances.