When Allocating Materiality, Most Practitioners Choose to Allocate To

question 94

Multiple Choice

When allocating materiality, most practitioners choose to allocate to:

• A) the income statement accounts because they are more important.
• B) the balance sheet accounts because there are fewer.
• C) both balance sheet and income statement accounts because there could be errors on either.
• D) all of the financial statements because it is required by GAAS.

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Definitions:

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year.

Gross Margin Percentage

A financial metric that represents the portion of sales revenue that exceeds the cost of goods sold, expressed as a percentage.

Net Income

The total profit of a company after all expenses, including taxes and interest, have been deducted from total revenue.

Dividend Payout Ratio

The percentage of earnings paid to shareholders in the form of dividends, calculated by dividing total dividends by net income.