An example of a correction of an error in previously issued financial statements is a change
A) from the FIFO method of inventory valuation to the average cost method.
B) in the service life of plant assets, based on changes in the economic environment.
C) from the cash basis of accounting to the accrual basis of accounting.
D) in the tax assessment related to a prior period.

Question

Quizplus · Accepted Answer

DChanging from the cash basis of accounting to the accrual basis of accounting (C) corrects an error in the application of accounting principles. Adjusting for a change in the tax assessment related to a prior period (D) corrects an error in the measurement of tax expense or liability. Choices A and B represent changes in accounting estimates rather than corrections of errors.

An Example of a Correction of an Error in Previously