Term
| Change In Accounting Principle |
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Definition
| A change in one generally accepted accounting principle to another. Example: a change in the method of depreciation from double declining to straight line. |
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Term
| Change in Accounting Estimate |
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Definition
| A change that occurs as the result of new information or as additional experience is acquired. Example: a change in the estimate of the useful lives of depreciable assets. |
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Term
| Change in Reporting Entity |
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Definition
| A change from reporting as one type of entity to another type of entity. Example: changing specific subsidiaries that constitiute the group of companies for which consolidated financial statements are prepared. |
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Term
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Definition
| Treated as prior period adjustments, and they are recorded in the year in which the error was discovered and are reported in the financial statements as an adjustment to the beginning balance of retained earnings. |
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Term
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Definition
| Errors that will be offset or corrected over two periods. Example: The failure to record accrued wages, because over a 2-year period the error will no longer be present. |
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Term
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Definition
| Recasting the financial statements of prior years on a basis consistent with the newly adopted principle. |
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Term
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Definition
| Adjustment reported in the current year's income statement as a special item. |
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Term
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Definition
| Previously reported results remain, and no change is made. |
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Term
| Non-Counterbalancing Errors |
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Definition
| Errors that are not offset in the next accounting period. Example: failure to capitalize equipment that has a useful life of 5 years. Take more than 2 periods to correct themselves. |
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Term
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Definition
| as if basis, as if the new principle had been applied during all periods affected. |
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Term
| 3 Types of accounting changes |
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Definition
| 1. Change in accounting principle 2. Change in accounting estimate 3. Change in reporting entity |
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Term
| Describe the accounting for changes in principles. |
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Definition
| One GAAP to another. A change is not resulting from adoption of a new principle in recognition of events that have occured for the first time or were previously immaterial. If previously used principle was incorrectly used, a change in GAAP would be a correction of an error. |
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Term
| Understand Accounting for Cum-Effect Changes |
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Definition
| Cumulative effect of the change should be shown at the bottom of the current year's income statement and that pro forma net income and earnings per share amounts be reported for all prior years. |
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Term
| Understand Accounting for Retroactive Changes |
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Definition
| Prior years' financials are recast on a basis consistent with the newly adopted principle, and any part of the effect attributable to years prior to those presented is treated as an adjustment of the earliest retained earnings presented. |
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Term
| Understand Changes to LIFO |
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Definition
| The base year inventory for all subsequent LIFO calculations is the opening inventory in the year the method is adopted. It is impractical to restate prior years. |
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Term
| Describe accounting for changes in estimate |
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Definition
| Must be handled prospectively, no changes should be made in previously reported results. No attempt is made to catch-up. |
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Term
| Identify Changes in reporting entity |
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Definition
| Should be reported by restating the financial statements of all prior periods presented, to show financial information for the new reporting entity for all periods. |
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Term
| Describe accounting for correction of errors |
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Definition
| Erros must be corrected by proper entries in the accounts and reported to the financial statements. Treated as prior period adjustments and recorded in the year where the error was discovered. As an adjustment to the beginning balance of retained earnings. |
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Term
| Identify economic motives for changing accounting methods (4) |
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Definition
| 1. Political Costs 2. Capital Structure 3. Bonus paments 4. Smooth earnings |
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Term
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Definition
| Accect only the presentation of an asset, liability, or equity account. |
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Term
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Definition
| Affect only the presentation of the nominal accounts in the income statement |
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Term
| Balance and Income Statement Effects |
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Definition
| Counterbalancing (will be offset or corrected in 2 periods) and Noncounterbalancing (will not be offset in 2 periods). |
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