Mega Loan Company has very stringent credit requirements and, accordingly, has negligible losses from uncollectible accounts. The company's independent accountants did not protest when, contrary to GAAP, the company recorded bad debt expense only when specific accounts were determined to be uncollectible, rather than use an allowance for uncollectible accounts. The concept demonstrated is:
A)Comparability.
B)Representational faithfulness.
C)Cost effectiveness.
D)Materiality.

Question

Quizplus · Accepted Answer

The concept demonstrated is materiality, as the company's independent accountants did not protest the deviation from GAAP as the losses from uncollectible accounts were negligible. Materiality concept allows for deviations from GAAP if the impact of the deviation is immaterial to the financial statements.

Mega Loan Company Has Very Stringent Credit Requirements And, Accordingly