Question

Steve is in charge of accounting for the purchase of equipment at Cal Works, Inc. The company has a policy that all expenditures greater than $1,000 (1% of total expenditures) have to be capitalized; less than $1,000 expensed. Steve is under pressure to report high earnings. He takes one $600 and $900 expenditure, adds them together, and records a capital expenditure for $1,500. Which of the following reasons and rationalizations might Steve use for his action:
One-time request
Standard Practice
Representational faithfulness
Materiality

Answer 1

Answer: Materiality

   

Explanation: In simple words, Materiality refers to the concept of accounting and auditing which states that all material transactions should be recorded in the financial statements.

It states that financial statement should be prepared as per the accounting and auditing principles so that it would be useful to the users.

In the given case, Steve has to make sure that the net income is high in the financial statements or it would not be useful for the organisation he works for.

Hence the correct option is D.