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) Faithful representation.
C) Cost-effectiveness.
D) Materiality.

Question

Quizplus · Accepted Answer

The concept demonstrated is materiality. Since Mega Loan Company has negligible losses from uncollectible accounts, the deviation from GAAP by not using an allowance for uncollectible accounts but instead recording bad debt expense only when specific accounts were determined to be uncollectible does not materially misstate the financial statements. Therefore, the accountants did not protest this practice.

Mega Loan Company Has Very Stringent Credit Requirements And, Accordingly