An item that should be reported as a prior period adjustment is the:
A) Correction of an error in depreciation from last year.
B) Payment of taxes due to a tax audit of last year's tax return.
C) Payment of a previously recorded warranty expense.
D) Receipt of the proceeds of a note receivable that was due last year.

Question

Quizplus · Accepted Answer

A prior period adjustment is a correction of an error that relates to a period before the current financial statements. In this case, the correction of an error in depreciation from last year would be considered a prior period adjustment. The other choices do not fit the definition of a prior period adjustment as they do not relate to a period before the current financial statements.

An Item That Should Be Reported as a Prior Period