Unit of Account Examples

Unit of account means to show all the asset and liabilities in one currency. It also means to show all the record on the basis of unique currency. We know there are lots of MNC which are doing businesses in many countries. So, it is sure there will be the transactions between two or more countries.

It may be possible that MNC has taken loan from one country and has given loan to other country. In this case if same MNC will show both asset and liability in different currency, it may be risky for company and other company which is dealing because currencies rate will always change. Assets sometime show more and liabilities sometime show low or vice-versa. So, best is to take one currency for showing both assets and liabilities.

We can explain Unit of Account with following two simple Examples.

First example

 we are taking of USA Based Financial Service Company in India whose name is American Express. It is doing business in many countries. But its overall balance sheet shows in dollars. In India, its branch is showing all the items of balance sheet in Indian currency. If American Express starts to show all liabilities in India in dollar and all assets in Indian currency, it may be possible, balance sheet will no useful for interested parties and also show differences due to changes in the exchange rates. 

Second Example 

Second example, we can take of SBI whose owner is Govt. of India. Its total assets and liabilities in countries are showing in Indian currency. Other side when we take the example of any branch for example its Japanese branch, its all assets and liabilities will be in Japanese currency yen.