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  • How is a change in estimate accounted for in a company’s financial statements?

    Changes in estimates, such as the estimated useful like for a tangible asset or the bad debt allowance percentage, are accounted for on a prospective basis. This means that the current and future financial statements must reflect the change, but the company does not need to change historical periods.

  • What does a retrospective change to the financial statements mean?

    When there are accounting changes, a company can either approach those changes on a prospective or retrospective basis. The approach ultimately depends on the type of change. When a company prepares it financial statements, there are often historical periods presented next to the current period. If the accounting change requires retrospective treatment, then those historical […]