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 do not change even though the purchasing power of a dollar can potentially change.
BREAKING DOWN Monetary Item
The most common monetary item is simply cash, whether a debt owed by a company (liability), a debt owed to it (asset) or a pile of cash in its account (asset). $100,000 of cash today will still be worth $100,000 a year later. If 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. Because the value is fixed at $40,000, this account payable is considered a monetary item. Bank deposits, short-term fixed income instruments and accounts receivable are monetary assets since they all can be readily converted into a fixed amount of money within a short time span. Monetary items are booked as current assets or liabilities on the balance sheet.
Monetary Item vs. Nonmonetary Item
A nonmonetary item is subject to a change in value and cannot be quickly converted to cash. A factory or piece of equipment is a nonmonetary item because its value generally declines over time with usage. Inventory is also a nonmonetary asset because it can become obsolete. Other nonmonetary items include intangible assets, long-term investments and certain long-term liabilities such as pension obligations, all of which could either rise or fall in value from period to period.