The concept of materiality is one of the most basic principles underlying financial accounting.a. Answer the following questions:1. Why is the materiality of a transaction or an event a matter of professional judgment?2. What criteria should accountants consider in determining whether a transaction or anevent is material?3. Does the concept of materiality mean that financial statements are not precise, down tothe last dollar? Does this concept make financial statements less useful to most users?b. Avis Rent-a-Car purchases a large number of cars each year for its rental fleet. The cost ofany individual automobile is immaterial to Avis, which is a very large corporation. Would itbe acceptable for Avis to charge the purchase of automobiles for its rental fleet directly toexpense, rather than to an asset account? Explain.
The concept of materiality is one of the most basic principles underlying financial accounting.
a. Answer the following questions:
1. Why is the materiality of a transaction or an event a matter of professional judgment?
2. What criteria should accountants consider in determining whether a transaction or an
event is material?
3. Does the concept of materiality mean that financial statements are not precise, down to
the last dollar? Does this concept make financial statements less useful to most users?
b. Avis Rent-a-Car purchases a large number of cars each year for its rental fleet. The cost of
any individual automobile is immaterial to Avis, which is a very large corporation. Would it
be acceptable for Avis to charge the purchase of automobiles for its rental fleet directly to
expense, rather than to an asset account? Explain.
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