The bookkeeper for Phillips, Inc. mistakenly recorded a $300,000 one-year trade note receivable as a long-term note receivable in 2017. Interest revenue was correctly recorded. The error was discovered in 2019 by the company's auditors. What is the proper way to correct the error?
A) Ignore the error because it is not material in amount.
B) Correct the classification in 2019 retrospectively for comparative balance sheets.
C) Use a footnote disclosure only because it does not change working capital.
D) Correct the classification and adjust retained earnings for 2017 and 2018.

Question

Quizplus · Accepted Answer

The error should be corrected retrospectively for comparative balance sheets to ensure that the financial statements are presented accurately for all periods.

The Bookkeeper for Phillips, Inc