Asked by Angela Mejias on Jun 03, 2024
Verified
A company made an error in recording the Year 1 purchase of computer equipment as an expense.This was discovered in Year 2.The item should be reported as a prior period adjustment on the Year 2 income statement.
Prior Period Adjustment
Corrections of errors in previously published financial statements not related to the current period.
Income Statement
A report detailing a company’s financial activities, including income and expenditures, over a designated accounting timeframe.
Computer Equipment
Hardware and devices, including computers, servers, and peripherals, necessary for the operations and management of digital tasks.
- Recognize the importance and methodology of adjustments for accounting errors and their implications on financial statements.
Verified Answer
ZK
Zybrea KnightJun 03, 2024
Final Answer :
False
Explanation :
The correction of the error should be applied retrospectively to the financial statements, which means adjusting the opening balances of assets, liabilities, and equity for the earliest period presented, not as a prior period adjustment on the Year 2 income statement.
Learning Objectives
- Recognize the importance and methodology of adjustments for accounting errors and their implications on financial statements.