A company made an error in recording the 2014 purchase of computer equipment as an expense.This was discovered in 2015.The item should be reported as a prior period adjustment on the 2015 income statement.

Question

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The error should be corrected by making an adjusting entry in the 2014 financial statements, not on the 2015 income statement as a prior period adjustment. The adjusting entry will increase an asset account (e.g. computer equipment) and decrease an expense account (e.g. supplies expense) in the 2014 financial statements.

A Company Made an Error in Recording the 2014 Purchase