Question

A company may make an exception to the accounting rules and not capitalize a long-lived asset if its cost is ____

(Enter only one word per blank.)

a) immaterial
b)insignificant
c)small
d)low
e)minimal
f)negligible

Answer 1

In accounting, a cost may not be capitalized if it is considered immaterial. Materiality is key to reflect economic impact and maintain clear financial statements. Minor, immaterial costs are often expensed rather than capitalized.

Step-by-step explanation:

A company may not capitalize a long-lived asset if its cost is immaterial. The concept of materiality in accounting dictates that the recording of transactions and assets should reflect their true economic impact. Minor costs that do not significantly affect a company's financial statements can be considered immaterial and may therefore be expensed rather than capitalized. This is to ensure efficiency in accounting and to present a clearer financial statement that reflects significant information for decision-making.