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Lecture Intermediate accounting (7e) - Chapter 20: Accounting changes and error corrections
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In this chapter we examine the way accounting changes and error corrections are handled in a variety of situations that might be encountered in practice. We see that most changes in accounting principle are reported retrospectively. Changes in estimates are accounted for prospectively. A change in depreciation methods is considered a change in estimate resulting from a change in principle. Both changes in reporting entities and the correction of errors are reported retrospectively. | Chapter 20 Accounting Changes and Error Corrections Chapter 20: Accounting Changes and Error Corrections. In this chapter we examine the way accounting changes and error corrections are handled in a variety of situations that might be encountered in practice. We see that most changes in accounting principle are reported retrospectively. Changes in estimates are accounted for prospectively. A change in depreciation methods is considered a change in estimate resulting from a change in principle. Both changes in reporting entities and the correction of errors are reported retrospectively. Accounting Changes The three types of accounting changes are a change in accounting principle, a change in accounting estimate, and a change in reporting entity. A change in accounting principle involves changing from one generally accepted accounting principle to another generally accepted accounting principle. A change in accounting estimate occurs when new information becomes available that allows a new and better estimate. A change in reporting entity is a change from reporting as one type of entity to another type of entity. Note that a change in depreciation methods is a change in estimate that is achieved by a change in accounting principle. Correction of an Error The correction of an error is another adjustment sometimes made to financial statements that is not actually an accounting change but is accounted for similarly. Errors occur when transactions are either recorded incorrectly or not recorded at all, as shown in the table on this screen. Error Corrections and Most Changes in Principle Retrospective Two Reporting Approaches Prospective Revise prior years’ statements (that are presented for comparative purposes) to reflect the impact of the change. The balance in each account affected is revised to appear as if the newly adopted accounting method had been applied all along or that the error had never occurred. Adjust the beginning balance of retained earnings for . | Chapter 20 Accounting Changes and Error Corrections Chapter 20: Accounting Changes and Error Corrections. In this chapter we examine the way accounting changes and error corrections are handled in a variety of situations that might be encountered in practice. We see that most changes in accounting principle are reported retrospectively. Changes in estimates are accounted for prospectively. A change in depreciation methods is considered a change in estimate resulting from a change in principle. Both changes in reporting entities and the correction of errors are reported retrospectively. Accounting Changes The three types of accounting changes are a change in accounting principle, a change in accounting estimate, and a change in reporting entity. A change in accounting principle involves changing from one generally accepted accounting principle to another generally accepted accounting principle. A change in accounting estimate occurs when new information becomes available that allows a