I have two questions with problem6 with attached files1. prepare the compound entry to correct the books at the end of 2004, assuming the books are closed.2. prepare the compound entry to correct the books at the end of 2004, assuming the books are still open.2
Flr, GF Partners Bldg, 139 H.V. dela Costa, Salcedo Village, Makati City
Accounting for Changes and Correction of Errors
DeFnition of Terms
conventions, rules and practices adopted by an enterprise in preparing and
presenting the Fnancial statements.
are errors discovered in the current period
with such signiFcance, that the Fnancial statements of one or more prior
periods can no longer be considered to have been reliable at the date of
Reasons why Accounting Changes Occur
The accounting profession may mandate that a new accounting principle is
to be used.
Changing economic conditions
Changes in technology and in operations
New experience or new information may prompt companies to change its
estimate of revenues
TYPES O± ACCOUNTING CHANGES
Change in Accounting Principles
This is a change from one generally accepted accounting principle to
another generally accepted accounting principle.
Adoption of a new principle in
recognition of events that have occurred for the 1st time is not a change in
There is no change in accounting principle when the
depreciation method adopted for a newly acquired asset is di±erent from the
method or methods used for previously recorded assets of similar class.
A change from a principle that is not generally accepted to one that is
generally accepted is considered to be an error correction than a change in
A change in accounting policy/principle should be applied retroactively
unless the amount of any resulting adjustment that relates to prior periods is not
Any resulting adjustment should be reported as an
adjustment to the opening balance of the retained earnings.
information should be restated unless it is impracticable to do so.
Change in Accounting Estimate
This is a change that occur as a result of new information or acquisition of
Changes in estimates are viewed as normal recurring
corrections and adjustments or the natural result of the accounting process.
Retroactive treatment is prohibited.
Report current and future Fnancial statements on the new basis.