The Materiality Constraint

question 12

Multiple Choice

The materiality constraint:

• A) States that an amount can be ignored if its effect on financial statements is unimportant to user's business decisions.
• B) Requires use of the allowance method for bad debts.
• C) Requires use of the direct write-off method.
• D) States that bad debts not be written off.
• E) Requires that expenses be reported in the same period as the sales they helped produce.

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Definitions:

Bankruptcy Relief

Legal procedures designed to provide individuals or businesses facing financial distress with relief from some or all of their debts.

Liquidation Order

A legal decree that mandates the dissolution of a company and the sale of its assets to pay off creditors.

Discharge Of Debt

The process of formally relieving a debtor from being legally obligated to pay a debt or obligation.

Chapter 7

A provision under the U.S. Bankruptcy Code that deals with liquidation, where an individual's or company's assets are sold to pay off debts.