Button Transportation purchases many pieces of office furniture with an individual cost below $200 each. Button chooses to account for these expenditures as expenses when acquired rather than reporting them as property, plant, and equipment on its balance sheet. The company's accountant and independent CPA agree that no accounting principle has been violated. What accounting justification allows Button to expense the furniture?

Question

Business

Angelica Rhodes

29 April, 09:41

Button Transportation purchases many pieces of office furniture with an individual cost below $200 each. Button chooses to account for these expenditures as expenses when acquired rather than reporting them as property, plant, and equipment on its balance sheet. The company's accountant and independent CPA agree that no accounting principle has been violated. What accounting justification allows Button to expense the furniture?

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Answers (1)

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Taliyah Palmer · Answer 1

materially principle

Explanation:

The materiality principle states that a business can choose to record a transaction in a different way (not following normal accounting standards) if by doing so it doesn't alter the decision making process of any person that reviews the financial statements of the company.

In other words, if the transaction was of a very low amount, it really doesn't matter how management wants to record it as long as it does record them, e. g. most expenses paid with a petty cash fund are insignificant if compared to the total accounts.

If Button Transportation's total sales exceed the millions, what they spend in a few cheap chairs or desks wouldn't make a difference.