Question

The general rule for differentiating between a change in an estimate and a correction of an error is:

A. based on the materiality of the amounts involved. Material items are handled as a correction of an error, whereas immaterial amounts are considered a change in an
estimate.
B. if a generally accepted accounting principle is involved, it's usually a change in an estimate.
C. if a generally accepted accounting principle is involved, it's usually a correction of an error.
D. a careful estimate that later proves to be incorrect should be considered a change in an estimate.

Answer 1

The general rule for differentiating between a change in an estimate and a correction of an error is based on the materiality of the amounts involved. Material items are handled as a correction of an error, whereas immaterial amounts are considered a change in an estimate.

Step-by-step explanation:

The general rule for differentiating between a change in an estimate and a correction of an error is based on the materiality of the amounts involved. Material items are handled as a correction of an error, whereas immaterial amounts are considered a change in an estimate. This means that if the amount in question is significant and could have a material impact on the financial statements, then it would be treated as a correction of an error. On the other hand, if the amount is relatively small and its impact on the financial statements is immaterial, it would be considered a change in an estimate.