Materiality concept, Accounting Basics

Assignment Help:

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.


Related Discussions:- Materiality concept

What do you mean by consigned goods, Q. What do you mean by consigned goods...

Q. What do you mean by consigned goods? FOB destination, freight collect - Seller acquires freight charges and buyer initially pays freight charges. Buyer deducts freight accus

What is accrual basis of accounting, Q. What is accrual basis of accounting...

Q. What is accrual basis of accounting? In the following illustration, notice that every business transaction affects two or more accounts in the ledger. As well note that

What is managerial accounting information, Q. What is Managerial accounting...

Q. What is Managerial accounting information? A Managerial accounting information is for internal use and provides special information for the managers of a company. The inform

Summary of significant accounting policies, Q. Summary of significant accou...

Q. Summary of significant accounting policies? As part of their annual reports companies comprise summaries of significant accounting policies. These policies help users in int

Accounting project, journal entries and how to calculate entries 1. Braves...

journal entries and how to calculate entries 1. Braves estimates bad debt expense at 2% of net sales 2. At 12/31/11, 6 months of rent remains on the storage facility Braves lease

Homework, #quest1. Use the general journal to journalize the following tran...

#quest1. Use the general journal to journalize the following transactions completed during July of the current year. 2. Post from the general journal to the general ledger. Using

Explain about the petty cash, Explain about the Petty Cash Petty Cash ...

Explain about the Petty Cash Petty Cash It is a small amount of money which is kept in the office for making small expenditures. ($10, $25, $50, etc.) Business will conclude

calculate wacc and rate of return, Calculate WACC and Rate of Return ...

Calculate WACC and Rate of Return Capital Structure: 50% debt and 50% equity financing Current cost of debt is 2% above prime (Prime is currently 2.5%) cost of equity is e

What is an accrual?, Accrual basis of accounting means that the costs or re...

Accrual basis of accounting means that the costs or revenues of events are renowned in the period in which they happens; by the cash flows may take place in another accounting peri

On january 1, On January 1, 2012, Bartell Company sold its idle plant facil...

On January 1, 2012, Bartell Company sold its idle plant facility to Cooper Inc. for $1,050000. On this date, the plant had a depreciated cost of $735,000. Cooper paid $150,000 ca

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd