ACCT 301 Exam 2 - Accounting Changes & Errors

Change in Accounting Principle

A change from one generally accepted accounting principle to another, such as changing inventory costing methods.

Accounting for a Change in Accounting Principle

Generally requires retrospective application, subject to applicable exceptions.

Change in Accounting Estimate

A revision to an estimate based on new information, such as changing the estimated useful life of equipment.

Accounting for a Change in Accounting Estimate

Prospective application, meaning the effects are recognized in the current and future periods as applicable.

Correction of an Accounting Error

Correcting a mistake in previously issued financial statements, such as a mathematical error or incorrect application of accounting principles.

Accounting for a Prior-Period Error

Generally requires retrospective correction of affected prior-period financial statements, when applicable.

Retrospective Application

Applying an accounting change or correction to prior periods as if the new principle had been applied or the error had not occurred.

Prospective Application

Applying an accounting change to the current and future periods without revising prior-period amounts.