Money Measurement Principle Limits Accounting Entries

Steps:

• Identify the event: Increased competition from a new café is a qualitative business risk, not a financial transaction.
• Recall accounting principles: Entries are made only for events measurable in monetary terms.
• Apply the principle: Since competition's impact can't be quantified in money, no journal entry is required.
• Confirm the match: This aligns with the money measurement concept in accounting.

Why C is correct:

• The money measurement principle states that only transactions and events expressible in monetary units are recorded in accounts, excluding non-quantifiable factors like competition.

Why the others are wrong:

• A. Historic cost principle requires assets to be recorded at original purchase price, unrelated to unmeasurable events.
• B. Materiality focuses on recording significant items that influence decisions, but competition isn't inherently monetary or material here.
• D. Prudence (conservatism) involves understating assets or overstating liabilities for caution, not ignoring non-monetary risks.

Final answer: C