An Item Is Considered Material If

question 25

Multiple Choice

An item is considered material if:

• A)it facilitates comparison with the financial statements of another company in the same industry.
• B)its inclusion in the financial statements would cause a statement user to change a decision.
• C)its dollar value is greater than 10% of net income.
• D)it is accounted for using a treatment that is not normally allowed by generally accepted accounting principles.

---

Definitions:

Adjustment

A financial transaction that corrects or updates the accounting records, often made at the end of an accounting period to ensure accuracy.

Prepaid Rent

An accounting term that refers to rent payments made in advance of the rental period to which it relates, classified as a current asset on the balance sheet.

Adjusting Entries

Bookkeeping entries executed at the termination of an accounting period to apportion profits and costs to the era in which they effectively took place.

Net Income

The total profit or loss of a company after all expenses, taxes, and costs have been subtracted from total revenues.