What is a 'Monetary Item'
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. The numbers don't change even though the purchasing power of a dollar does. The distinction is easy to see when contrasted against a non-monetary item like a factory. A factory will see its value - its price represented as a number of dollars - fluctuate over time like any other physical property. It may lose value over the years as it becomes outdated. Or it may gain value as a city grows up around it. So a company may record a factory as being worth $500,000 one year and $480,000 the next, whereas the same $100,000 in cash will be recorded as $100,000 every year.
BREAKING DOWN 'Monetary Item'
Monetary items are simply cash, whether a debt owed by a company, a debt owed to it or a pile of cash in its account. For example, a company owes $40,000 to a supplier for goods delivered. That line item is recorded at $40,000 even though, when the company pays the bill three months later, the cost of those same goods has increased $3,000 because of inflation. Similarly, if the company holds $200,000 in cash, that $200,000 is considered a monetary item and is recorded as $200,000 even though, four years later, it may only buy $180,000 worth of goods compared to when it was first put into an account.