What is the Difference Between Monetary and Nonmonetary Assets?
🆚 Go to Comparative Table 🆚The main difference between monetary and nonmonetary assets lies in their liquidity, convertibility, and value fluctuation.
Monetary assets are:
- Easily converted into a fixed amount of money.
- Liquid, meaning they can be quickly converted into cash or cash equivalents with minimal loss of value.
- Stated as a fixed value in dollar terms, although their purchasing power may change due to inflation.
- Examples include cash, cash equivalents, accounts receivable, and notes receivable.
Nonmonetary assets are:
- Not easily converted into cash or cash equivalents due to their subjective valuations.
- Non-liquid, as they may take time to dispose of and their value may fluctuate due to various factors like depreciation, inflation, or market forces.
- Subject to value fluctuations over time and may change due to factors like inflation, depreciation, or market forces.
- Examples include property, plant and equipment (PP&E), goodwill, copyrights, patents, and trademarks.
In summary, monetary assets are easily converted into cash and maintain a fixed value, while nonmonetary assets are not easily converted into cash and their value may fluctuate over time.
Comparative Table: Monetary vs Nonmonetary Assets
Here is a table comparing the differences between monetary and nonmonetary assets:
Feature | Monetary Assets | Nonmonetary Assets |
---|---|---|
Definition | Assets that can be readily converted into a fixed amount of money. | Assets that cannot be readily converted into a fixed amount of money. |
Liquidity | High liquidity, meaning they can be easily converted into cash. | Low liquidity, meaning they cannot be easily converted into cash. |
Examples | Cash on hand, bank deposits, investment accounts, accounts receivable, and notes receivable. | Property, plant and equipment, patents, copyrights, trademarks, and goodwill. |
Type | Tangible and intangible current assets. | Tangible and intangible non-current assets. |
Value | Value represents a fixed amount that can be converted into cash or cash equivalents. | Value does not have a fixed rate at which the company can convert them into cash. |
In summary, monetary assets are assets that can be easily converted into a fixed amount of money, such as cash and cash equivalents, accounts receivable, and notes receivable. On the other hand, nonmonetary assets are assets that cannot be readily converted into a fixed amount of money, such as property, plant and equipment, patents, copyrights, trademarks, and goodwill.
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