A retailer increases bad debts expense from 2.5% to 3% of credit sales. Given this information, which of the following statements is correct?
A)The net income of prior years is overstated and a retrospective correction should be made.
B)This is a change in estimate and should be treated prospectively.
C)This is a change in accounting policy and treatment is retrospective.
D)This is a correction of an error and a retrospective correction should be made.

Question

Quizplus · Accepted Answer

This is considered a change in estimate, which is accounted for prospectively, meaning it affects the current and future periods but does not require adjustments to prior periods' financial statements.

A Retailer Increases Bad Debts Expense from 2