Define: Cumulative Effect
the difference in prior years' income btwn the newly adopted and prior accounting method.
answers.com: Cumulative Effect of a Change in Accounting Principle- Income statement account reflecting the Net of Tax effect of switching from one principle to another. Cumulative effect equals the difference between the actual retained earnings reported at the beginning of the year using the old method and the retained earnings that would have been reported at the beginning of the year if the new method had been used in prior years. Assume in 2005 a company goes from straightline depreciation to sum-of-the-years'-digits depreciation. In 2005, the new method is used to determine depreciation expense. However, the cumulative on prior years of the difference between straight-line (e.g., $50) and sum-of-the-years'-digits (e.g., $65) must be noted. The difference is charged to the cumulative effect account. The entry is to debit cumulative effect $15 and credit accumulated depreciation $15.