Income Statement

Know the difference between a change in accounting principle and a change in accounting estimate, and how to apply each of them. Accounting Principle - retrospective* application (apply to all past financial statements) Accounting Estimate - prospectively* application (apply forward, estimates - fwd. future) What do they mean by apply each of them? Any calculations/problems associated with these? (*could be spelling this wrong)

accounting estimate – you had estimated the Salvage value for sale of an equipment in year 1 of operations, and had estimated that the life of the equipment would be e.g. 10 years, and based on these estimates you stated the financial statements for years 1, 2 and 3 of operations. After year 3 - you change Salvage value estimate and the life of equipment is reduced from 10 years to 5 years. This would change the depreciation amount. But the change is effective only PROSPECTIVELY – for the future – from now onwards. Accounting Principle: Change of Inventory methodology from LIFO to FIFO This restates all Financial Statements. There may not be calculations, but problems definitely are possible – such as definitional items. CP

nice…danke schon