A prior period adjustment would be necessary when:

Question

Quizplus · Accepted Answer

A prior period adjustment is necessary when errors are discovered in the financial statements of a prior period, such as when depreciation expense was understated in the previous year. This requires correction to accurately reflect the company's financial position and performance. Stock and cash dividends, whether declared or paid, do not require prior period adjustments as they are recorded in the period they occur.

A Prior Period Adjustment Would Be Necessary When