Transaction classification

Question 1

Change in accounting estimate; Prospective approach.

Answer 1

A change in the estimate of the percentage of uncollectible accounts is a change in accounting estimate that must be applied prospectively.

Question 2

A change in estimate inseparable from a change in principle; Prospective approach

Answer 2

A change in the method of depreciation, amortization, or depletion is a change in estimate inseparable from a change in principle. It is accounted for prospectively. It is accounted for in the current and future years’ financial statements only.

Question 3

Change in reporting entity; Retrospective application.

Answer 3

A change in reporting entity occurs when an entity presents consolidated or combined statements for the first time or when such statements include different entities from those reported previously. It is accounted for retrospectively.

Question 4

Change in accounting principle; Retrospective application.

Answer 4

A change from one generally accepted principle of accounting to another is a change in accounting principle that is retrospectively applied