Modifying conventions on materiality, Accounting Basics

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Q. Modifying conventions on Materiality?

The Materiality is a modifying convention that permits accountants to deal with immaterial (unimportant) items in an expedient however theoretically incorrect manner. The basic question accountants must ask in judging the materiality of an item is whether a knowledgeable user's decisions would be different if the information were presented in the theoretically correct manner. Otherwise the item is immaterial and may be reported in a theoretically incorrect but expedient manner. For example for the reason that inexpensive items such as calculators often don't make a difference in a statement user's decision to invest in the company they are immaterial (unimportant) and may be expensed when purchased. But because expensive items such like mainframe computers usually do make a difference in such a decision they are material important and must be recorded as assets and depreciated. Accountants must record all material items in a theoretically correct manner. They may perhaps record immaterial items in a theoretically incorrect manner merely because it is more convenient and less expensive to do so. For instance they may debit the cost of a wastebasket to an expense account rather than an asset account even though the wastebasket has an expected useful life of 30 years. It merely isn't worth the cost of recording depreciation expense on such a small item over its life.


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