Page 26 - Book-keeping for Secondary Schools Student’s Book Form One
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Book-Keeping for Secondary Schools
when goods are delivered, services are of the financial statements. Materiality
rendered, or contractual obligations is determined by the nature and amount
are fulfilled. It is recognised even if of an item or event. If an item or event
payment is not received at that time. is significant to impact the assessment or
This principle ensures that revenue is evaluation of a business’s financial position,
matched with the period in which it is performance, or cash flows, it should be
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earned. This provides a more accurate disclosed in the financial statements.
depiction of an enterprise’s financial The materiality principle recognises that
performance.
(b) Expense recognition: Expenses are not all financial information is of equal
recognised when they are incurred. importance. It allows accountants to focus
meaning when goods or services are on reporting information that is relevant and
received or consumed, regardless of significant, while avoiding excessive detail
when payment is made. This principle that may not affect the decision-making
ensures that expenses are matched process. Allowing excessive details may
with the related revenues or the period crowd the important information that would
in which they contribute in generating be the focus of the users of accounting
revenue. information. This principle encourages
someone to exercise professional judgment
Activity 2.1
in determining material information that
Imagine you are in charge of tracking requires clear and transparent disclosure
money for a small shop. Can you tell in the financial statements. Information is
your friend about a time when the therefore material if its inclusion or omission
shop spent or earned money? Then, in the financial statements can affect the
explain how you would write it down decision of the users of financial statements.
in the shop's money records. You need
to write down two things: one for the The materiality principle acknowledges that
money that goes out and one for the financial statements should present a true and
money that comes in. Can you also fair view of a business’s financial position
explain why you are writing those and performance. It enables users to make
things down? informed decisions based on the significant
factors affecting the business’s financial
outcomes. Applying the materiality principle
Materiality principle requires someone to exercise professional
The materiality principle states that judgment, considering both quantitative
financial information should be reported and qualitative factors. Accountants must
and disclosed if it has the potential to consider the impact of an item or event on
influence the decision-making of users
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Student’s Book Form One
Book Keeping Form 1 New 2024 FINAL.indd 18 18/10/2024 10:14
