Unit of Account Law and Legal Definition

A unit of account is a standard monetary unit of measurement used for describing the value of something. It can be used to determine the value, cost of goods, services, or assets. It contributes meaning to profits, losses, liability, or assets. It is one of the principal functions of money. Currencies and objects like pieces of gold or silver are commonly used as a unit of account because they have a number of traits which make them suitable for this purpose. The important characteristics of a unit of account includes (i) the ability to standardize and easily understand the object that is used as a unit of account; (ii) its stability; and (iii) the ability to get easily broken up into components of equal value without losing value. Usually, units of account are used for expressing loans, debt obligations, credits, and costs for goods sold. Further, when people wish to keep track of their financial activities, they also use units of account in a practice called accounting.