The Materiality Principle

question 92

Multiple Choice

The materiality principle:

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

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Definitions:

Ledger Balance

represents the total balance in a general ledger account at the beginning of each day, including all transactions that have been posted.

Available Balance

The amount of funds in an account that is accessible for withdrawal or use, taking into account any holds or pending transactions.

Initial Cash Balance

The amount of cash a company has at the beginning of a financial period.