Chapter 20 Study Notes Flashcards
Change in accounting principle
change form one generally accepted accounting principle to another
ex:
adopt a new accounting standard codificationrrr
change methods of inventory costing
change from cost method to equity method
etc.
change in accounting estimate
revision of an estimate because of new information or new experience
ex:
change depreciation methods
change estimate of useful life of a depreciable asset
change est. of residual value
etc
change in reporting entity
change from reporting as one type of entity to another type of entity
ex:
consolidate a subsidiary not previously included in consolidated financial statements
error correction
correction of an error caused by a transaction being recorded incorrectly or not at all
ex:
mathematical mistake
inaccurate physical count of inventory
change from the cash basis of accounting to accrual
fraud
etc.
retrospective approach
changing previous years
- revise comparative financial statements
- adjust accounts for the change
- disclosure notes - disclose the change
prospective approach
changing from now into the future, done when retrospective change is impracticable
most changes in accounting principle are…
retrospective
LIFO produces a _______ COGS than FIFO
higher
statements changed from changes in accounting principle that must be restated
income statements
balance sheets
inventory, RE
How long are tax payers given to recapture the tax on a change in inventory method
6 years
reasons why the prospective method is used and it is impracticable to do retrospective
when they can’t determine period specific effects
when they can’t determine the cumulative effect of prior years
when mandated by accounting literature
change in depreciation is a
change in accounting estimate and is changed prospectively
changes in accounting estimate are reported
prospectively
