Question

Explain the principle of materiality.

Answer 1

1. This principle is an exception to the principle of full disclosure. The principle of materiality requires that accounting should focus on material facts.
2. Efforts should not be wasted in recording the presenting facts which are immaterial for the determination of income. Whether an item is material or not is a matter of judgement.
3. There cannot be any hard and fast rule for that. Indeed, no clear guidance can be given for this. Examples of the principle of materiality are the use of petty cash book, the practice of omitting paise while recording the transactions, opening one account for different items, i.e., miscellaneous expenses a/c or sundries a/c., treating fixed assets of small value like stapler, or scissors as revenue expenditure.