The Materiality Constraint

question 71

Multiple Choice

The materiality constraint:

• A) Prescribes that only information that would influence the decisions of a reasonable person need be disclosed.
• B) Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.
• C) Provides guidance on when a company must recognize revenue.
• D) Prescribes that accounting information is based on actual cost.
• E) Prescribes that a company record the expenses it incurred to generate the revenue reported.

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Definitions:

Average Total Cost

The total cost of production divided by the number of goods produced, representing the per-unit production cost.

Producing

The process of creating goods or services through the combination of labor, materials, and technology.

Scale

In economics, scale refers to the level at which a business or activity is operating regarding its volume of production or size.

Consumer Equilibrium

A state in which a consumer has allocated their income in a way that maximizes their utility, given their budget constraints.