Question:
The correction of a material error discovered in a year subsequent to the year the error was made is
considered a prior period adjustment. Briefly describe the accounting treatment for prior period
adjustments.
Answer:
Prior period adjustments are accounted for by restating prior years’ financial statements when those
statements are presented again for comparison purposes. The beginning of period retained earnings is
increased or decreased on the statement of shareholders’ equity (or the statement of retained earnings) as
of the beginning of the earliest period presented.
The correction of a material error discovered in a year subsequent to the year the error was made is
considered a prior period adjustment. Briefly describe the accounting treatment for prior period
adjustments.
Answer:
Prior period adjustments are accounted for by restating prior years’ financial statements when those
statements are presented again for comparison purposes. The beginning of period retained earnings is
increased or decreased on the statement of shareholders’ equity (or the statement of retained earnings) as
of the beginning of the earliest period presented.
