A change in accounting principle requires that the cumulative effect of the change for prior periods be shown as an adjustment to:
A) beginning retained earnings of the earliest period presented.
B) net income of the period in which the change occurred.
C) comprehensive income for the earliest period presented.
D) stockholders' equity of the period in which the change occurred.

Question

Quizplus · Accepted Answer

A change in accounting principle is a retroactive adjustment that affects prior periods. Therefore, the cumulative effect of the change must be shown as an adjustment to the beginning retained earnings of the earliest period presented. This adjustment is necessary to ensure that the financial statements are comparable across years and reflect the change in accounting principle consistently.

A Change in Accounting Principle Requires That the Cumulative Effect