What are the three types of accounting changes?

The three types of accounting changes are classified as a change in accounting principle, a change in accounting estimate, and a change in accounting entity.

A change in accounting principle refers to a switch from one generally accepted accounting principle (GAAP) to another, which may occur due to new accounting standards or a better representation of the financial situation.

A change in accounting estimate involves adjustments based on new information or developments, which is common for items such as depreciation expenses or bad debt allowances. It's important to understand that estimates are regularly reviewed and adjusted as more information becomes available.

A change in accounting entity refers to a situation where the reporting entity's structure changes, such as when a new subsidiary is formed, or when an entity merges with another. This type of change can significantly affect the financial statements and how information is presented.

These concepts are integral to the understanding of accounting as they highlight how companies must adapt their financial reporting practices to reflect their operational realities, comply with regulations, and provide accurate information to stakeholders. Each type of change has specific reporting implications and may require disclosures to inform users of the financial statements adequately.