Accounting changes and error corrections

Question 1

Change in accounting principle (retrospective application)

Answer 1

Dr. Retained Earnings
Cr. Accumulated Depreciation

Question 2

Change in estimate for useful life of asset (prospective application)

Answer 2

Dr. Depreciation Expense
Cr. Accumulated Depreciation

Question 3

Correction of an error in prior year’s inventory count

Answer 3

Dr. Inventory
Cr. Retained Earnings

Question 4

Change in reporting entity (retrospective application)

Answer 4

Dr. Various Assets
Cr. Various Liabilities
Cr. Retained Earnings

Question 5

Correction of mathematical error in prior year’s financial statements

Answer 5

Dr. Accounts Receivable
Cr. Retained Earnings

Question 6

Change from LIFO to FIFO inventory method (retrospective application)

Answer 6

Dr. Inventory
Cr. Retained Earnings
Cr. Deferred Tax Liability

Question 7

Correction of error in depreciation calculation

Answer 7

Dr. Retained Earnings
Cr. Accumulated Depreciation

Question 10

Change in accounting principle for revenue recognition (retrospective application)

Answer 10

Dr. Retained Earnings
Cr. Deferred Revenue

Question 10

Correction of error in capitalization of expenses

Answer 10

Dr. Retained Earnings
Cr. Property, Plant, and Equipment

Question 11

Change in accounting estimate for bad debt allowance (prospective application)

Answer 11

Dr. Bad Debt Expense
Cr. Allowance for Doubtful Accounts