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Okay! Let's move on to the principle of materiality.
The principle of materiality states that we, as an organisation, have to fully disclose our monetary situation.
Here's a graph that shows our assets! This is information that can be accessed by the government and our shareholders.
Ann's Accounting Firm - Monetary Situation
Assets of Ann's Accounting Firm
This is another example of the principle of materiality. These banks here have released their assets as public information for anyone to see.
Oh! So basically, this principle makes sure that an organisation has their monetary situation available.
Yep! That's it. It makes sure that shareholders have the information they need to make any decisions.
What principle is next?
Hmm... how about we talk about the principle of prudence? It makes sure that accountants don't speculate when creating financial statements.
Let's use these books as an example. Although they cost $1,200 on the current market, they cost $1,000 to buy. Therefore, our assets would be recorded down as $1,000.