A monetary asset is a type of financial asset that constitutes money (cash) held in, and assets whose value can be converted into, a fixed or determinable amount of money (cash). Under accounting principles, a monetary asset doesn’t gain or lose value over some time. In other words, monetary assets do not depreciate or appreciate over time in the market. However, in reality monetary assets may be impacted by inflation or deflation, and as a result their real value doesn’t remain fixed over the long run, and even over the short run in specific cases.
In terms of currency value, monetary assets remain fixed irrespective of the economic situation. However, in real terms, the value of the purchasing power of the monetary assets change according to the economic situation of the country in which an entity (holing monetary assets on its balance sheet) operates.
Examples of monetary assets include the following:
- Cash and cash equivalents.
- Bank deposits.
- Investment in (holdings of) debt instruments.
- Lease investments.
- Accounts receivable: trade receivables and other receivables (recognized for cash settlement).
- Short-term investments.
- Notes receivable.
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