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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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The cumulative effect of an accounting change should generally be reported as an adjustment to the beginning balance of retained earnings in tin period in which the change is made for a:

Chapter 22, Problem 1MC, The cumulative effect of an accounting change should generally be reported as an adjustment to the

To determine

Find the correct option, the option that indicates the reporting of changes in accounting principle and accounting estimate.

Explanation

Accounting changes: When a company requires to sacrifice the consistent accounting methods and procedures, to enhance the usefulness and relevance of the accounting information, those changes are referred to as accounting changes. Such inevitable accounting changes decrease the comparability and consistency of accounting information. The reasons for accounting changes could be new methods introduced by FASB (Financial Accounting Standards Board), changes in accounting principles, and changes in accounting estimates. The following are the three types of accounting changes:

  • Change in an accounting principle
  • Change in an accounting estimate
  • Change in a reporting entity

Justification for correct answer: A change in accounting principle effects the values that impact the figures of previous and current years, thus, impairs the consistency and comparability...

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