Most random or trivial expenses are recorded in the miscellaneous expense account. At the end of...

Most random or trivial expenses are recorded in the miscellaneous expense account. At the end of the year the miscellaneous expense account has a total of RM1,400 and the total revenue of the company has a total of RM400,000. There is no need to reclassify the expenses in it. This is in line with the ______________ concept. *

a.accrual

b.comparability

c.materiality

d.neutrality

Solutions

Expert Solution

Based on the information available in the question and the scenario, the correct answer is Option C - Materiality . Materiality concept states that items that have the ability to alter or change the view of the users or readers of the financial statements should be properly disclosed within the financial statements. Since the miscellaneous expense account has a total of $1,400 and the total revenue of the comapny has a total of RM400,000 , based on the volume of the account to the revenues of the company as a whole it is deemed that there is no need to reclassify the expenses in it. This falls under the category of materiality and hence it is the correct answer.

Option A is incorrect. Accrual concept states that the revenues and expenses related to the business are recorded during the period earned and not when it is received or spent. It is not applicable in the above scenario.

Option B is incorrect. Comparability concept states that the users of financial statements of the business must be able to compare the reports of the business to that of the previous years. This concept is not applicable here and hence is invalid.

Option D is incorrect. Neutrality concept states that business decisions should be free from bias and should be based out of professional skepticism. However, with respect to the above scenario, the materiality concept is applicable and hence this is not the correct answer.

Please let me know if you have any questions via comments and all the best :) !

ekkarill92 answered 1 year ago

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