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In this session, Professor Forhat discusses accounting changes, specifically focusing on changes in accounting estimates. He explains that companies frequently make estimates for various expenses, including bad debt expense and warranty expense. These estimates are necessary because future costs are uncertain, requiring firms to record a figure today based on their best judgment. For example, when calculating bad debt expense, an estimate is made as the actual future expense is unknown. Similarly, when a product comes with a warranty, the associated warranty expense must be estimated. Thus, companies must allocate these expenses over the relevant periods.
