Video: Changes in Accounting Estimate

In this lesson, Nick Palazzolo, CPA, unravels the complexities surrounding changes in accounting estimates, a frequently encountered topic. He clarifies how such changes differ from changes in accounting principles, with the former being applied prospectively and the latter retrospectively. Using tangible examples, Nick demonstrates the process of evaluating and adjusting estimates for items like uncollectible receivables, inventory obsolescence, and depreciable assets. He guides through a practical scenario involving a truck's depreciation adjustments to explain how to recalibrate past figures against the backdrop of new information and their subsequent effects on future financial statements. Additionally, Nick discusses the concept of materiality in disclosures, stressing the significance of reporting only material changes and their impact on income and per-share amounts for the current period.