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The Materiality Principle Permits the Use of the Direct Write-Off

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The materiality principle permits the use of the direct write-off method of accounting for uncollectible accounts when bad debts are very large in comparison to the company's other financial statement items such as sales and net income.


Definitions:

Coupon Rate

Each year, the interest rate given on a bond calculated as a percentage of its nominal value.

Duration

A measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates, expressed in years.

Interest Rate Risk

The potential for investment losses due to fluctuations in interest rates, affecting the value of interest-bearing assets.

Default Risk

The possibility that a borrower will fail to meet the obligations of a debt agreement.

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