Which of the Following Is/are True About Accounting for Errors

question 203

Multiple Choice

Which of the following is/are true about accounting for errors and changes in accounting principles and changes in accounting estimates?

• A)Firms account for material errors in previously issued financial statements by retrospectively restating net income of prior periods and adjusting the beginning balance in Retained Earnings of the current period.
• B)If practical, firms account for voluntary changes in accounting principles, such as from a LIFO to a FIFO cost-flow assumption for inventories, by retrospectively restating net income of prior periods and adjusting the beginning balance in Retained Earnings of the current period.
• C)Firms account for changes in accounting principles required by a new reporting standard in accordance with the guidance specified in the standard.
• D)Firms account for changes in estimates, such as for depreciable lives, uncollectible accounts, or warranty cost, prospectively, in current and future periods' earnings.
• E)all of the above

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Definitions:

Sales Allowance

A reduction in the selling price of goods or services, typically granted to customers for various reasons like minor defects or dissatisfaction.

Partial Derecognition

The process in accounting where only a portion of a financial asset or liability is removed from the balance sheet.

Receivables

These are amounts owed to a business by its customers for goods or services delivered on credit.

GAAP

Generally Accepted Accounting Principles, a set of accounting rules and standards used in the United States for preparing financial statements.