The Materiality Principle

question 112

Multiple Choice

The materiality principle

• A) States that an amount can be ignored if its effect on financial statements is unimportant to the user and permits use of the direct write-off method
• B) Permits use of the direct write-off method
• C) Prohibits use of the direct write-off method
• D) States that an amount can be ignored if its effect on financial statements is unimportant to the user
• E) Both permits and prohibits use of the direct write-off method

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Definitions:

Job Order Cost System

An accounting system that assigns costs to specific production batches or jobs and is used in situations where items are distinct and made to order.

Underapplied Overhead

A situation where the allocated factory overhead for a period is less than the actual overhead costs incurred, indicating that the costs have been underallocated.

Applied Overhead

This refers to the amount of overhead cost assigned to a particular cost object, like a product or project, based on a predetermined rate or formula.

Actual Overhead

The actual indirect costs incurred for operations, including costs associated with manufacturing overhead not directly tied to a specific product or service.