LeoGlossary: Unit Of Account

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a year ago - 1 minutes read

One of the basic functions of money. This allows for meaningful interpretations of price, costs and profits. Essentially it is a measurement of value.

Having a standard unit of account allows for the comparison of different goods and service. The metric itself isn't as important as the consistency and understanding of it.

This basis provides some valuable benefits:

  • enables borrowing and lending
  • trading of goods and services
  • provide consistent financial documents

Each currency, including cryptocurrencies, will have their own unit of account. The challenge is being able to derive meaningful interpretation.

For example, with Bitcoin, Satoshi is the unit of account. At issue is the fact this has no correlation for most people to real property.

Since it is a measurement of value, understanding what it means and how it translates into comparison is vital.

Difficulty arises when trying to make comparisons using different units of accounts. This can occur frequently when dealing in global trade. Since entities might not all use the same currency, this can lead to problems when the unit of account differs. In fact, multi-national corporations have this problem when dealing with their operations in separate regions. A unit in Japan, for example, will denote everything in JPY where the European operations will use the EUR. If it is an American public company, when filing with the SEC, the unit of account is USD, meaning it all has to be converted to that.


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