When an accounting change is reportedunder the retroactive approach, account bal

Question

When an accounting change is reportedunder the retroactive approach, account balances in the generalledger: 1) Are notadjusted. 2) Are closed out andthen updated. 3) Are adjusted net ofthe tax effect. 4) Are adjusted to whatthey would have been had the new method been used in previousyears. When an accounting change is reportedunder the retroactive approach, account balances in the generalledger: 1) Are notadjusted. 2) Are closed out andthen updated. 3) Are adjusted net ofthe tax effect. 4) Are adjusted to whatthey would have been had the new method been used in previousyears. When an accounting change is reportedunder the retroactive approach, account balances in the generalledger: When an accounting change is reportedunder the retroactive approach, account balances in the generalledger: Are notadjusted. Are closed out andthen updated. Are adjusted net ofthe tax effect. Are adjusted to whatthey would have been had the new method been used in previousyears. 1) Are notadjusted. 2) Are closed out andthen updated. 3) Are adjusted net ofthe tax effect. 4) Are adjusted to whatthey would have been had the new method been used in previousyears.

Explanation / Answer

When an accounting change is reported under theretroactive approach , account balances in the general ledgerare

4) Adjusted to what they would have been had the newmethod been used in previous years. In other words, the company“goes back” and adjusts prior years’ statementson a basis consistent with the new principle.

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