What is Material in Accounting?

Information is considered to be material when its absence would have an effect on the decisions of the users of financial statements. Items are considered to be material when they have an excessive impact on reported profits, or on individual line items within the financial statements. The concept usually applies to a reporting entity’s income statement, but it can also apply to its balance sheet or statement of cash flows.

For example, a large corporation reports annual revenue of $500 million. If an accounting error results in an overstatement of $1,000 in revenue, it may not be material because it represents a tiny fraction of total revenue and is unlikely to impact decisions. However, if the same error were $10 million, it would be material as it constitutes 2% of total revenue, which could significantly influence investors’ perceptions of the company’s financial health.

What is Material in Materials Management?

Material also refers to the raw stock from which finished goods are made. Examples of material are raw materials, components, sub-components, and production supplies. In essence, anything consumed during the production process can be classified as material.

Material Misstatement

Material Participation

Material Weakness

Materiality