When changes in an accounting principle impact income of periods that were prior to the earliest presented on the financial statements:

Question

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When changes in an accounting principle impact income of periods that were prior to the earliest presented on the financial statements, the cumulative impact on the earlier periods is reported as an adjustment to retained earnings in the earliest period presented. This adjustment is made to correct any material misstatements in prior periods caused by the change in accounting principle.

When Changes in an Accounting Principle Impact Income of Periods