Materiality concept, Accounting Basics

Materiality Concept:

There are several events in business that are trivial or insignificant in nature. The cost of reporting and recording such events will not be justified through the usefulness of the information derived. The materiality concept holds such items of small importance require not be specified strict theoretically accurate treatment. For illustration, a paper stapler costing Rs. 30 may last for three years. Though, the effort included in allocating its cost over the three-year period is not worth the profit than can be derived from this operation. As the item clearly is immaterial when associated to overall operations, the cost incurred on this may be reacted as the expense of the period wherein it is acquired. Several of the stationery purchased for office utilize in any accounting period may continue unused at the end of such period. In accounting, the amount spent in the entire stationery would be reacted as an expense of the period wherein the stationery was purchased, notwithstanding the actuality that a tiny part of it still lies in stock. The value or cost of the stationery lying in stock would not be reacted as an asset and carried forward like a resource to the subsequently period. The accountant would regard the stock lying not used as immaterial. Thus, all amount spent on stationery would be considered as the expense of the period wherein such expense was incurred.

Where to sketch the line in between immaterial and material events is a matter of judgment and common sense. There are no rigid rules in this respect. Whether a specific item or occurrence is material or not, must be determined by considering its association to the other items and the surrounding conditions. This is desirable to establish and obey uniform policies governing such matters.

Posted Date: 4/3/2013 5:55:04 AM | Location : United States

Related Discussions:- Materiality concept, Assignment Help, Ask Question on Materiality concept, Get Answer, Expert's Help, Materiality concept Discussions

Write discussion on Materiality concept
Your posts are moderated
Related Questions
Q. Explain about Modifying conventions? In certain examples companies don't strictly apply accounting principles because of modifying conventions (or constraints). Modifying co

General rationale financial statements provide much of the information needed by external users of financial accounting. These financial statements are official reports providing i

how much is it to get a tutor, per hour or package? i am in an mba program now

effects of technology in banking sector

On october 31 A fund accrued 2000.00 for legal fees. In November 2000 the fund received an invoice. for October 2008 legal fees for an amount of $2500 and paid the invoice on Nov

Q. Explain about Cash equivalents? Cash equivalents are highly liquid short-term investments obtained with temporarily idle cash and easily convertible into a known cash amount

Acid test ratio = 2.5, current ratio = 1.5 net working capital = 10,00,000 fixed assets =? Share holder''s fund = 15,00,000 Stock inventory =? Bank overdraft =? Share capital =

Fixed asset are assets which provides the business future benefit Fixed assets are those which are tangible in nature and is not meant for sale in the near future and from whi

What are the components or materials used by Accounts receivable departments? Ans) Accounts Receivable department is very vital department of the company. The responsibilities o

Ordering inventory at a regular and set time interval