A prior period adjustment should be reflected, net of applicable income taxes, in the financial statements of a business entity in the
A) Retained earnings statement after net income but before dividends
B) Retained earnings statement as an adjustment of the opening balance
C) Income statement after income from continuing operations
D) Income statement as part of income from continuing operations

Question

Quizplus · Accepted Answer

A prior period adjustment reflects a correction of an error that occurred in a previous period's financial statements. It is not part of the current period's income or expenses and therefore should not be included in the income statement. Instead, it should be reflected in the retained earnings statement as an adjustment of the opening balance. This ensures that the correct beginning balance is used for the current period's financial statements. Additionally, prior period adjustments should be reflected net of applicable income taxes.

A Prior Period Adjustment Should Be Reflected, Net of Applicable