Materiality
Definition
The threshold above which an omission or error would change a reasonable users decision about the business. It governs how much precision and disclosure a given item justifies, and is judged in context rather than by a fixed percentage.
Related Terms in Accounting Principles
Going Concern
The assumption that the business will continue operating for the foreseeable future, which is what permits assets to be carried at cost rather than liquidation value. Where significant doubt exists, management and auditors must disclose it.
Fiscal Year
The twelve-month period a business uses for reporting and tax, which need not match the calendar year. India uses 1 April to 31 March; the UK tax year for individuals ends 5 April; many US businesses use the calendar year, and retailers often pick a trading low point.
Cost Accounting
The practice of capturing, assigning and analysing the cost of producing goods or delivering services, so that pricing, margin and efficiency decisions rest on real figures. Internal by nature, it is not bound by external reporting standards.
Adjusting Entries
Journal entries posted at the end of a period so that revenue and expenses fall in the right period under accrual accounting. The usual categories are accruals, prepayments, depreciation, and provisions such as doubtful debts.
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