Describe the Way We Account for a Change in Estimate

question 69

Essay

Describe the way we account for a change in estimate. What is the appropriate accounting if we are unable to determine whether a change is a change in estimate or a change in principle?

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Definitions:

Break-even Point

The point at which total cost and total revenue are equal, meaning no net loss or gain, and the business is not making a profit but not losing money either.

Contribution Format

A type of income statement format that separates fixed costs from variable costs to highlight the contribution margin.

Income Statement

A financial document that provides a summary of a company’s revenues, expenses, and profits/losses over a specific period, showing how the revenue is transformed into net income.

Variable Expenses

Expenses that vary directly with the amount of production or activity level.