An example of an item that should be reported as a prior period adjustment is the
A) collection of previously written off accounts receivable.
B) payment of taxes resulting from examination of prior years' income tax returns.
C) correction of an error in financial statements of a prior year.
D) receipt of insurance proceeds for damage to a building sustained in a prior year.

Question

Quizplus · Accepted Answer

Prior period adjustments are corrections of errors in financial statements of a prior year. Options A, B, and D are not prior period adjustments but are examples of regular business transactions such as collection of accounts receivable, payment of taxes, and receipt of insurance proceeds.

An Example of an Item That Should Be Reported as a Prior