Question

Mega Loan Company has very stringent credit requirements and, accordingly, has negligible losses from uncollectible accounts. The company's independent accountants did not protest when, contrary to GAAP, the company recorded bad debt expense only when specific accounts were determined to be uncollectible, rather than use an allowance for uncollectilble accounts. The concept demonstrated is:
a. Comparability
b. Faithful representation
c. Materiality
d. Consistency

Answer 1

Answer:

The correct answer is letter "C": Materiality.

Explanation:

The Materiality principle refers that one of the accounting standards can be left behind only if it has an irrelevant impact on the financial statements. According to the Generally Accepted Accounting Principles (GAAP) only when an item is "immaterial", provisions for the transaction derived from that item are not mandatory. But, the definition of what is material and immaterial is not provided by the GAAP, then, it relies on the judgment of the accountant.