An entry to record a change in accounting principle will typically require an adjustment to the firm's retained earnings balance to reflect the cumulative effect of the change in accounting principle on all prior periods' reported net income.

Accounting Principle

Fundamental guidelines or rules that underpin the accounting practices and financial reporting standards.

Retained Earnings

The portion of net income that is not paid out as dividends but retained by the company to be reinvested in its core business or to pay debt.

Cumulative Effect

The total impact of a single event, policy change, or accounting principle applied retrospectively to previous periods’ financial statements.