Change in Accounting Estimate
Updating Estimates
Accounting estimates are based on the best information available at a given time. As new information becomes available, estimates may need to change. These changes are not considered errors.
- Useful life of equipment.
- Residual value estimates.
- Bad debt allowances.
- Warranty obligations.
- Inventory obsolescence estimates.
Tip
Changes in estimates affect only current and future financial statements because estimates reflect new information rather than past mistakes.
Summary
Changes in accounting estimates are reported prospectively.