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Chapter 22: Question 1 (page 1305)

In recent years, the Wall Street Journal has indicated that many companies have changed their accounting principles. What are the major reasons why companies change accounting methods?

Short Answer

Expert verified

The Accounting principles are the rules and regulations, and the reasons to change them are to bring change to the whole company and produce better accounting reports.

Step by step solution

01

Definition of accounting principles

Accounting principles refer to the rules and regulations which the companies have to follow when recording and reporting the financial data.

02

Explanation of reasons

The companies change accounting methods because of the following reasons:

  1. There is a requirement of change in accounting methods of the whole organization and its standards of accounting
  2. If the new accounting method shows more reliable and relevant accounting reports

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Prior to 2017, Heberling Inc. excluded manufacturing overhead costs from work in process and finished goods inventory. These costs have been expensed as incurred. In 2017, the company decided to change its accounting methods for manufacturing inventories to full costing by including these costs as product costs. Assuming that these costs are material, how should this change be reflected in the financial statements for 2016 and 2017?

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