Asked by Komal Klair on Jun 24, 2024
Verified
A prior period adjustment should be reported as an adjustment to the retained earnings balance at the beginning of the period in which the adjustment was made.
Prior Period Adjustment
Corrections of material errors related to a prior period or periods, excluded from the determination of net income.
Retained Earnings
The portion of a company's profits that is kept or retained for reinvestment in the business, rather than being distributed to shareholders as dividends.
- Examine the consequence of retained earnings' scale on dividend allocations.
Verified Answer
ST
Shiju T JoseJun 30, 2024
Final Answer :
True
Explanation :
This is correct per generally accepted accounting principles (GAAP). A prior period adjustment should be recorded as a direct adjustment to the beginning balance of retained earnings in the earliest period presented in which the error occurred. This ensures that the financial statements for that period are restated to reflect the correction of the error.
Learning Objectives
- Examine the consequence of retained earnings' scale on dividend allocations.