Timber was evaluating the likelihood of collecting accounts receivable currently on its books. This evaluation resulted in the decision to change from the direct recognition method to the installment method for recognizing receivables. The account. treatment for this change is best characterized as:

Prospective

Retroactive

Cumulative

Restatement.

Correct answer:     a.

I don't understand why not d. Isn't this the correction of an error that would cause F/S to be restated? I thought that the direct method isn't GAAP. Anyone? This question comes from Becker (but I dont have the explanation)

Where did you see this question in Becker?  I looked through the Chapter 1 MCQ but didn't see it.

I am thinking that the change should be accounted for prospectively because the effect of the change cannot be reasonably estimated.

I do see your point that it is a correction of an error as well.  Maybe Becker got the answer wrong, wouldn't be the first time.

maybe they are considering this a change in estimate that is imbeded with a change in accounting principle (even though it is non-GAAP to GAAP) and that is why it is prospective.

But I am with you, my choice on the exam would have been restatement.