# ASC 250-10-55: Accounting Changes and Error Corrections — Overall — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/250/10/#55-implementation-guidance-and-illustrations) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-09T23:17:12.020Z to 2026-09-09T23:17:12.020Z Record version: sha256:fdc7bad6d9f549302a1a7f139a82a239bb1f8254fa80b0d60cf8102ef84f4515 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 250-10-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/250/10/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [250-10-55-1](https://asc.understandingaccounting.org/asc/250/10/#250-10-55-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:17:12.020Z to 2026-09-09T23:17:12.020Z Record version: sha256:391d7ac1c64854b167c7cc0539610b60579a64c718abab67f7cbd300fed0e912 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A change in composition of the elements of cost included in inventory is an [accounting change](https://asc.understandingaccounting.org/glossary/a/#accounting-change "A change in an accounting principle, an accounting estimate, or the reporting entity. The correction of an error in previously issued financial statements is not an accounting change."). An entity that makes such a change for financial reporting shall conform to the requirements of this Subtopic, including justifying the change on the basis of preferability as specified by paragraphs [250-10-45-11 through 45-13](https://asc.understandingaccounting.org/asc/250/10/#250-10-45-11) . In applying the guidance in this Subtopic, preferability among accounting principles shall be determined on the basis of whether the new principle constitutes an improvement in financial reporting and not on the basis of the income tax effect alone. #### Illustrations ##### [250-10-55-2](https://asc.understandingaccounting.org/asc/250/10/#250-10-55-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:17:12.020Z to 2026-09-09T23:17:12.020Z Record version: sha256:b5af66d7e3a29ae38cd054a7ec29d5d31750097a6a6fa8e410052e9ebb644aaf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section presents generalized Examples intended to illustrate how to apply certain provisions of this Subtopic. The Examples do not address all possible situations or applications of this Subtopic, nor do they establish additional requirements. ##### [250-10-55-3](https://asc.understandingaccounting.org/asc/250/10/#250-10-55-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:17:12.020Z to 2026-09-09T23:17:12.020Z Record version: sha256:3d8bb29e14c405172dc75f336663830898ff435fd98b74c04cce971813fed96f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraphs [250-10-45-5 through 45-8](https://asc.understandingaccounting.org/asc/250/10/#250-10-45-5) . Entity A decides at the beginning of 20X7 to adopt the first-in, first-out (FIFO) method of inventory valuation. Entity A had used the last-in, first-out (LIFO) method for financial and tax reporting since its inception on January 1, 20X5, and had maintained records that are adequate to apply the FIFO method retrospectively. Entity A concluded that the FIFO method is the preferable inventory valuation method for its inventory. The [change in accounting principle](https://asc.understandingaccounting.org/glossary/c/#change-in-accounting-principle "A change from one generally accepted accounting principle to another generally accepted accounting principle when there are two or more generally accepted accounting principles that apply or when the accounting principle formerly used is no longer generally accepted. A change in the method of applying an accounting principle also is considered a change in accounting principle.") is reported through [retrospective application](https://asc.understandingaccounting.org/glossary/r/#retrospective-application "The application of a different accounting principle to one or more previously issued financial statements, or to the statement of financial position at the beginning of the current period, as if that principle had always been used, or a change to financial statements of prior accounting periods to present the financial statements of a new reporting entity as if it had existed in those prior years.") as described in paragraph [250-10-45-5](https://asc.understandingaccounting.org/asc/250/10/#250-10-45-5). ##### [250-10-55-4](https://asc.understandingaccounting.org/asc/250/10/#250-10-55-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:17:12.020Z to 2026-09-09T23:17:12.020Z Record version: sha256:0f0e39bf1ed21731148e22515871df333638b1228c508d86ae7ad00402e03e1e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The effects of the change in accounting principle on inventory and cost of sales are presented in the following table. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-AE3AABAD-F1AD-4D9B-BEF3-12996B9FBD76-low.gif) Inventory Determined by Cost of Sales Determined by Date LIFO Method FIFO Method LIFO Method FIFO Method 1/1/20X5 $- $- $- $- 12/31/20X5 100 80 800 820 12/31/20X6 200 240 " 1,000 " 940 12/31/20X7 320 390 " 1,130 " " 1,100 " ##### [250-10-55-5](https://asc.understandingaccounting.org/asc/250/10/#250-10-55-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:17:12.020Z to 2026-09-09T23:17:12.020Z Record version: sha256:1ca1600ff7c8885127056725807e059afeddb62b0bed99de6f1f497f2370d231 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example is based on the following assumptions: 1. a For each year presented, sales are $3,000 and selling, general, and administrative costs are $1,000. Entity A's effective income tax rate for all years is 40 percent, and there are no permanent or temporary differences under Subtopic 740-10 prior to the change. 2. b Entity A has a nondiscretionary profit-sharing agreement in place for all years. Under that agreement, Entity A is required to contribute 10 percent of its reported income before tax and profit sharing to a profit-sharing pool to be distributed to employees. For simplicity, it is assumed that the profit-sharing contribution is not an inventoriable cost. 3. c Entity A determined that its profit-sharing expense would have decreased by $2 in 20X5 and increased by $6 in 20X6 if it had used the FIFO method to compute its inventory cost since inception. The terms of the profit-sharing agreement do not address whether Entity A is required to adjust its profit-sharing accrual for the incremental amounts. At the time of the accounting change, Entity A decides to contribute the additional $6 attributable to 20X6 profit and to make no adjustment related to 20X5 profit. The $6 payment is made in 20X7. 4. d Profit sharing and income taxes accrued at each year-end under the LIFO method are paid in cash at the beginning of each following year. 5. e Entity A's annual report to shareholders provides two years of financial results, and Entity A is not subject to the requirements of Subtopic 260-10. ##### [250-10-55-6](https://asc.understandingaccounting.org/asc/250/10/#250-10-55-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:17:12.020Z to 2026-09-09T23:17:12.020Z Record version: sha256:d3fe1bb9429bb087eda54087119a5acc881fbc68ce99e59692235e55bbac6301 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In accordance with paragraph [250-10-45-8](https://asc.understandingaccounting.org/asc/250/10/#250-10-45-8), recognized [indirect effects of a change in accounting principle](https://asc.understandingaccounting.org/glossary/i/#indirect-effects-of-a-change-in-accounting-principle "Any changes to current or future cash flows of an entity that result from making a change in accounting principle that is applied retrospectively. An example of an indirect effect is a change in a nondiscretionary profit sharing or royalty payment that is based on a reported amount such as revenue or net income.") are recorded in the period of change. That provision applies even if recognition of the indirect effect is explicitly required by the terms of the profit-sharing contract. ##### [250-10-55-7](https://asc.understandingaccounting.org/asc/250/10/#250-10-55-7) Pending content: no Source downloaded (UTC): 2026-09-09T23:17:12.020Z to 2026-09-09T23:17:12.020Z Record version: sha256:f19c9b7a47f957ef20ebff4e4d717b5daf93dfb5ffd6889e02c8b0629f60d46a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A's income statements as originally reported under the LIFO method are presented below. ##### [250-10-55-8](https://asc.understandingaccounting.org/asc/250/10/#250-10-55-8) Pending content: no Source downloaded (UTC): 2026-09-09T23:17:12.020Z to 2026-09-09T23:17:12.020Z Record version: sha256:fc652ebd4d29898693573ee989c66200279bd3bf78a6a61486fbf1ed5dbcf9df Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Income Statement - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-4159CB7D-C202-4368-9D0F-F74F77D001C4-low.gif) 20X6 20X5 Sales " $3,000 " " $3,000 " Cost of goods sold " 1,000 " 800 "Selling, general, and administrative expenses" " 1,000 " " 1,000 " Income before profit sharing and income taxes " 1,000 " " 1,200 " Profit sharing 100 120 Income before income taxes 900 " 1,080 " Income taxes 360 432 Net income $540 $648 ##### [250-10-55-9](https://asc.understandingaccounting.org/asc/250/10/#250-10-55-9) Pending content: no Source downloaded (UTC): 2026-09-09T23:17:12.020Z to 2026-09-09T23:17:12.020Z Record version: sha256:99231cb5645a6cf202e8cf2c482d0ddae746025b6dee92a8b2062de29a9f9354 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A's income statements reflecting the retrospective application of the accounting change from the LIFO method to the FIFO method are presented below. ##### [250-10-55-10](https://asc.understandingaccounting.org/asc/250/10/#250-10-55-10) Pending content: no Source downloaded (UTC): 2026-09-09T23:17:12.020Z to 2026-09-09T23:17:12.020Z Record version: sha256:72a838e515b42cd22cc3d950b531201ab8b097bc830cc5c3e11f6132d8a2f84d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Income Statement - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-935C2846-CEA8-4714-870E-E4DF945295ED-low.gif) 20X7 20X6 As Adjusted (Note A) Sales " $3,000 " " $3,000 " Cost of goods sold " 1,100 " 940 "Selling, general, and administrative expenses" " 1,000 " " 1,000 " Income before profit sharing and income taxes 900 " 1,060 " Profit sharing 96 100 Income before income taxes 804 960 Income taxes 322 384 Net income $482 $576 ##### [250-10-55-11](https://asc.understandingaccounting.org/asc/250/10/#250-10-55-11) Pending content: no Source downloaded (UTC): 2026-09-09T23:17:12.020Z to 2026-09-09T23:17:12.020Z Record version: sha256:119d5315abd7b16a6793531ca24f6704365d537af5e952d9f63330b4029535e5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A's disclosure related to the accounting change is presented below. - NOTE A: - Change in Method of Accounting for Inventory Valuation - On January 1, 20X7, Entity A elected to change its method of valuing its inventory to the FIFO method, whereas in all prior years inventory was valued using the LIFO method. The new method of accounting for inventory was adopted \[state justification for change in accounting principle\] and comparative financial statements of prior years have been adjusted to apply the new method retrospectively. The following financial statement line items for fiscal years 20X7 and 20X6 were affected by the change in accounting principle. - _Income Statement_ - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-2384DB48-D3B3-498F-8A47-3424557422AE-low.gif) 20X7 As Computed under LIFO As Reported under FIFO Effect of Change Sales " $3,000 " " $3,000 " $- Cost of goods sold " 1,130 " " 1,100 " (30) "Selling, general, and administrative expenses" " 1,000 " " 1,000 " - Income before profit sharing and income taxes 870 900 30 Profit sharing 87 96 (a) 9 Income before income taxes 783 804 21 Income taxes 313 322 9 Net income $470 $482 $12 (a) "This amount includes a $90 profit-sharing payment attributable to 20X7 profits and $6 profit-sharing payment attributable to 20X6 profits, which is an indirect effect of the change in accounting principle. The incremental payment attributable to 20X6 would have been recognized in 20X6 if Entity A's inventory had originally been accounted for using the FIFO method." - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-08EE57B3-4940-416B-B273-0CC8E420F624-low.gif) 20X6 As Originally Reported As Adjusted Effect of Change Sales " $3,000 " " $3,000 " $- Cost of goods sold " 1,000 " 940 (60) "Selling, general, and administrative expenses" " 1,000 " " 1,000 " - Income before profit sharing and income taxes " 1,000 " " 1,060 " 60 Profit sharing 100 100 - Income before income taxes 900 960 60 Income taxes 360 384 24 Net income $540 $576 $36 - _Balance Sheet_ - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-38E890AA-287E-46B6-848F-ACF12B497919-low.gif) 12/31/X7 As Computed under LIFO As Reported under FIFO Effect of Change Cash " $2,738 " " $2,732 " $(6) Inventory 320 390 70 Total assets " $3,058 " " $3,122 " $64 Accrued profit sharing $87 $90 $3 Income tax liability 313 338 25 Total liabilities 400 428 28 Paid-in capital " 1,000 " " 1,000 " - Retained earnings " 1,658 " " 1,694 " 36 Total stockholders' equity " 2,658 " " 2,694 " 36 Total liabilities and stockholders' equity " $3,058 " " $3,122 " $64 - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-C77A6A5B-229A-4777-BF34-FB80FA3E3019-low.gif) 12/31/X6 As Originally Reported As Adjusted Effect of Change Cash " $2,448 " " $2,448 " $- Inventory 200 240 40 Total assets " $2,648 " " $2,688 " $40 Accrued profit sharing 100 100 - Income tax liability 360 376 16 Total liabilities 460 476 16 Paid-in capital " 1,000 " " 1,000 " - Retained earnings " 1,188 " " 1,212 " 24 Total stockholders' equity " 2,188 " " 2,212 " 24 Total liabilities and stockholders' equity " $2,648 " " $2,688 " $40 - As a result of the accounting change, retained earnings as of January 1, 20X6, decreased from $648, as originally reported using the LIFO method, to $636 using the FIFO method. - _Statement of Cash Flows_ - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-B57780BD-FAAD-4F1B-BCB1-7DB73D8A58CF-low.gif) 20X7 As Computed under LIFO As Reported under FIFO Effect of Change Net income $470 $482 $12 Adjustments to reconcile net income to net cash provided by operating activities Increase in inventory (120) (150) (30) Decrease in accrued profit sharing (13) (10) 3 Decrease in income tax liability (47) (38) 9 Net cash provided by operating activities 290 284 (6) Net increase in cash 290 284 (6) "Cash, January 1, 20X7" " 2,448 " " 2,448 " - "Cash, December 31, 20X7" " $2,738 " " $2,732 " $(6) - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-66F336B9-F685-42C2-BDAE-2D05406FBA66-low.gif) 20X6 As Originally Reported As Adjusted Effect of Change Net income $540 $576 $36 Adjustments to reconcile net income to net cash provided by operating activities Increase in inventory (100) (160) (60) Decrease in accrued profit sharing (20) (20) - Decrease in income tax liability (72) (48) 24 Net cash provided by operating activities 348 348 - Net increase in cash 348 348 - "Cash, January 1, 20X6" " 2,100 " " 2,100 " - "Cash, December 31, 20X6" " $2,448 " " $2,448 " $- ##### [250-10-55-12](https://asc.understandingaccounting.org/asc/250/10/#250-10-55-12) Pending content: no Source downloaded (UTC): 2026-09-09T23:17:12.020Z to 2026-09-09T23:17:12.020Z Record version: sha256:e219c25925714806a55ffec01070c4a3cae49c7522de7ead9cbb19bdd826f702 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraphs [250-10-45-9 through 45-10](https://asc.understandingaccounting.org/asc/250/10/#250-10-45-9) . Assume Entity A changed its accounting principle for inventory measurement from FIFO to LIFO effective January 1, 20X4. Entity A reports its financial statements on a calendar year-end basis and had used the FIFO method since its inception. Entity A determined that it is impracticable to determine the cumulative effect of applying this change retrospectively because records of inventory purchases and sales are no longer available for all prior years. However, Entity A has all of the information necessary to apply the LIFO method on a prospective basis beginning in 20X1. Therefore, Entity A should present prior periods as if it had carried forward the 20X0 ending balance in inventory (measured on a FIFO basis) and begun applying the LIFO method to its inventory beginning January 1, 20X1. (The example assumes that Entity A established that the LIFO method was preferable for Entity A's inventory. No particular inventory measurement method is necessarily preferable in all instances.)