Question

Discuss the materiality concept. Is the dollar amount that is material the same for a company that has annual sales of \(10,000 compared with a company that has annual sales of \)1,000,000?

Short answer

No, the dollar amount or anything material would not be the same for both the companies having annual sales of $10,000 and $1,000,000.

Step-by-step solution

Materiality concept

The materiality concept states that accounting records should be made only for significant and materialistic items. The level of significance and materiality may differ from business to business.

Materiality concept in the given case

In the given case, one company has annual sales o $10,000 whereas the other company has annual sales of $1,000,000. So, the second company has 100 times higher sales than the first company.

Thus, due to the lesser level of sales, anything material would be of higher importance for the company first than the second company.

So, in this way, the dollar amount that is material would be 100 times of higher importance for the company first is than the company second.