Dalangin, Ashley Andrei P.

BSA 1 – 3

1. Define Accounting Policies.

Accounting policies are a set of rules or guidelines that the company
needs to follow while preparing and presenting its financial statements.

Example: The revenue is recognized only when the goods are receipt by the
customer. In this case, the evidence to support revenue recognition in the
Financial Statement would be a delivery note that signed receipted by the
customers.

2. Define change in accounting policies how are they reported and provide
example.
A change in accounting estimate is an adjustment of the carrying amount
of an asset or liability, or related expense, resulting from reassessing the
expected future benefits and obligations associated with that asset or liability.

Example: The reporting in the inventory takes place by two processes: Last-In-
First Out and First-In-First-Out. These two methods take the responsibility of
maintaining reports in the inventory. Both the process is completely different from
one another.
 F-I-F-O: Under this cost method, whenever there is selling of the product,
the inventory producing it first is considered as sold.
 L-I-F-O: Under this cost method, whenever there is selling of the product,
the inventory responsible for selling it last is the one that is sold.

3. Changes in accounting policies.

An entity is permitted to change an accounting policy only if the change is
required by a standard or interpretation and the results in the financial statements
provides reliable and more relevant information about the effects of
transactions, other events or conditions on the entity's financial position, financial
performance, or cash flows.

4. Define accounting estimates.

Accountants use estimates in their reports when it is impossible or
impractical to provide exact numbers. When these estimates prove to be
incorrect, or new information allows for more accurate estimations, the entity
should record the improved estimate in a change in accounting estimate.
5. Define change in accounting estimates, how are they reported and provide
example.
A change in accounting estimate is an update to an approximation to a
specific accounting treatment used in the past. A change usually only occurs
when new information, subsequent developments, or improved judgments can be
made that impact an accounting period.

Example: A good example of an estimate commonly made by accountants

is useful life of an asset. Depreciation expense is based on how long an asset
can be used to produce goods. A shorter useful life means depreciation will be
recognized sooner.

6. Define prior period adjustments and how are they treated/reported?

A prior period adjustment is the correction of an accounting error that
occurred in the past and was reported on a prior year’s financial statement, net of
income taxes. In other words, it’s a way to go back and fix past financial
statements that were misstated because of a reporting error.