1. accounting changes three situations change in accounting principles
change in accounting estimates
correction of accounting errors

2. three methods of presentation

3. change in accounting principles
retrospective method - voluntary
if specified by ASU
prospective method - to LIFO
cumulative effect method - if allowed by ASU
change in accounting estimates
prospective method
correction of accounting errors (from prior periods)
retrospective method

5. retrospective change in accounting principle
specified for certain accounting changes
for example a change from LIFO to ???
correction of prior period errors
prior period adjustments
calculate the cumulative effect as of 1/1/xx of the first year presented in the financial statements

6. Income State
State of RE

7. required entry it is 1/28/15 (actually anytime during 2015)
2015 G.L. is still open
2014 G.L. is closed
Inventory
Retained Earnings
we can’t adjust 2014’s G.L. it is closed so we have to make our AJE in 2015’s G.L.

8. cumulative effect change in accounting principle
if it were permitted by ASC
in our example - from LIFO cost to FIFO

9. Income State
State of RE
fold here

10. required entry it is 1/28/15 (actually anytime during 2015)
2015 G.L. is still open
2014 G.L. is closed
Inventory
Cumulative effect

11. prospective change in accounting principle
in our example from ave cost to LIFO
too difficult to calculate the cumulative effect, you would have to go back to day 1
changes in accounting estimates
change estimated life of depreciable asset
change estimates in bad debt expense

12. Income State
State of RE
Balance Sheet
fold here

13. no entry required
you take the balances in the G.L. on 12/31/14 and use those for your beginning balances in 2015

15. correction of a prior period error are you up the creek without

16. single year financial statements
these are the financial statements that we mailed out last year using LIFO
but we made a mistake in our physical inventory ... we only counted 8 units
and we all know they really had 10

19. with a Prior Period Adjustment
these are the financial statements that we will mail out this year showing the correction
with a Prior Period Adjustment

21. required entry it is 1/01/12 (actually sometime in 2012)
2012 G.L. is still open
2011 G.L. is closed
Inventory 9.00
Retained Earnings 9.00

22. two-year comparative financial statements
these are the financial statements that we mailed out last year using LIFO
we made a mistake in our physical inventory ... we only counted 8 units
and we all know they really had 10

25. these are the financial statements that we will mail out this year showing the correction

27. required entry it is 1/01/13 (actually sometime in 2013) Inventory .00
2013 G.L. is still open
2012 G.L. is closed
Inventory .00
Retained Earnings .00
we can’t adjust 2012’s G.L. it is closed so we have to make our AJE in 2013’s G.L. as of 12/31/2012 Inventory is OK

28. no bull
TAD