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. Monetary assets (such as cash and accounts receivable) and monetary liabilities (such as notes and accounts payable) have a fixed exchange value unaffected by inflation or deflation.
A nonmonetary item is an asset or liability that does not have a fixed exchange cash value but whose value depends on economic conditions.
The differences between monetary and nonmonetary items are given below;
Aspect | Monetary Item | Nonmonetary Item |
Exchange Rate | It has a fixed numerical value of the exchange rate. | The fixed or determinable amount of exchange rate is absent. |
Item Includes | It includes a current asset or liability. | It includes a fixed asset or liability. |
Calculation | The value of a monetary asset is usually calculated according to | It is calculated by the acquisition cost value. |
Inflation Effects | Holding monetary items during a period of inflation will result in a purchasing power loss gain. | During the period of inflation, the price will be adjusted. |
Period of Time | A monetary asset can be accessed in a relatively short period of time | It cannot be accessed within a short time. |
Tangibility | It is tangible. | It is intangible. |
Compensation | There is no compensation for changes in the value of money. | There is compensation for changes in the value of money. |
Example | Cash, Account Receivable, Notes, and Account Payable. | Copyrights and Patents, Goodwill, Inventories, Property. |