If a company makes a prior period adjustment, which of the following describes how it must be reported?

A) The adjustment is recorded in retained earnings, and previous years' financial statements presented for comparative purposes are not changed.
B) The adjustment is recorded in retained earnings, and previous years' financial statements presented for comparative purposes are adjusted.
C) The adjustment is reported in the current period's income statement as a separate item.
D) The adjustment is recorded as a deferred asset or deferred liability and amortized using the straight-line method.

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Lutherann Massainte · Accepted Answer

Final Answer : B, Explanation :  When a company makes a prior period adjustment, it must be reported by adjusting the previous years' financial statements presented for comparative purposes. The adjustment is recorded in retained earnings to reflect the correction of errors from prior periods. This approach ensures that the financial statements provide accurate and reliable information for users.

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