Lore Co. changed from the cash basis of accounting to the accrual basis of accounting during 1994. The cumulative effect of this change should be reported in Lore's 1994 financial statements as a:

Under U.S. Generally Accepted Accounting Principles (GAAP), the cash basis of accounting is not an acceptable comprehensive basis of accounting for most entities. The accrual basis is the required standard. Therefore, a change from the non-GAAP cash basis to the GAAP-required accrual basis is considered a correction of an error, not a change in accounting principle. The cumulative effect of an error correction related to prior periods is reported as a prior period adjustment. This involves restating any presented prior period financial statements and adjusting the beginning balance of retained earnings for the earliest period presented.

B. Prior period adjustment resulting from the change in accounting principle. This is incorrect because a change in accounting principle involves switching from one acceptable GAAP method to another (e.g., LIFO to FIFO), not from a non-GAAP method to a GAAP method.
C. Component of income before extraordinary item. This is incorrect. The cumulative effect of an error correction is not reported in the current period's income statement. It is an adjustment to the beginning balance of retained earnings.
D. Component of income after extraordinary item. This is incorrect for the same reason as option C. Furthermore, the concept of extraordinary items has been eliminated from U.S. GAAP. ---

1. Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 250, Accounting Changes and Error Corrections.

ASC 250-10-45-23: "A change from an accounting principle that is not generally accepted to one that is generally accepted is a correction of an error."

ASC 250-10-50-7: This section outlines the disclosure and reporting for error corrections, which requires retrospective restatement, confirming the treatment as a prior period adjustment to retained earnings, not as a component of current income.

2. Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2022). Intermediate Accounting (18th ed.). Wiley.

Chapter 22, "Accounting Changes and Error Analysis," explicitly states that a change from the cash basis to the accrual basis is a correction of an error. The chapter details that such corrections are handled as prior period adjustments with retrospective restatement of financial statements.

3. Spiceland, J. D., Nelson, M. W., & Thomas, W. B. (2021). Intermediate Accounting (11th ed.). McGraw-Hill Education.

Chapter 4, "The Income Statement and Statement of Comprehensive Income," discusses accounting changes. It clarifies the distinction between a change in principle and an error correction, noting that adopting GAAP for the first time (e.g., moving from cash to accrual) is treated as an error correction requiring retrospective restatement.