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Materiality Principle

  • It refers to “relative important”. All important and relevant fact should be recorded in the financial statement.
  • Unimportant items are either left out or merged with other items.
  • For e.g. Expenses incurred for purchases of pen, stapler, scissors etc., can be clubbed under the head office stationary expenses.
  • “American Accounting Association defines the term Materiality as “An item should be regarded as material if there is reason to believe that knowledge of it would influence the decision of informed investor”

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