Misstatements Must Be Compared with Some Measurement Base Before a Decision

question 103

Multiple Choice

Misstatements must be compared with some measurement base before a decision can be made about materiality. A commonly accepted measurement base includes

• A) net income.
• B) total assets.
• C) working capital.
• D) all of the above.

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Definitions:

Net Method

An accounting method of recording purchases at the net of any trade discounts and rebates.

Purchase Discounts Lost

Occurs when a company fails to take advantage of early payment discounts offered by suppliers, leading to higher purchase costs.

Gross Method

The gross method in accounting is a way of recording purchases at the full invoice price without deduction of any cash discounts.

Accounts Payable

A current liability account on the balance sheet representing amounts owed by a company to suppliers or creditors for goods and services purchased on credit.