Material Immaterial Accounting Concepts - GAAP
Materiality is the concept which states that information that can influence the economic decisions of the users of financial statements.
An Immaterial is the concept in which an item
is insignificant to affect the economic decisions of the users of financial statements
of the company businesses.
The question about as to whether an
information or item is material or immaterial depends on the nature of the item
or information and to include it into your financial statement section “Notes
to the Accounts”.
Following are the Factors upon which
Materiality may depend:
Ø If the treatment of an item
changes the trends or turns the profit into a loss or when the materiality
affects the solvency ratios of balance sheet of company businesses, then we do
not apply it in wider way, but treat it as an immaterial item.
Ø If the company businesses earns
unusual less profits or faces loses during the Accounting Cycle, then the concepts should apply with the normal
operating activities of the company businesses. Such information provided in
the Notes To The Accounts can affects the economic decisions of the users of
financial statements.
Ø Any small item can not be treated
as immaterial because there is probable that this small amount may become
larger in future so it influences the economic decisions of users of financial
statements.
Ø Offsetting the items with each
other can only be made when it is significant to provide the information
separately. The result after offsetting the items may be immaterial but to show
only the net results can not give to users of financial statements a true and
fair view of financial statements of company businesses. In case of addition of
larger number of small items, it is also required to provide aggregated amount
alongwith the each separate small amounts of each small items.
Hopefully, now you will be able to learn the
topic Material Immaterial Accounting Concepts in General Accepted Accounting
Principles (GAAP)
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