Tantramar Geothermal has hired a new accountant. When she reviewed the financial statements for the previous year, she found a significant error which would mean that the statements were wrong. She should NOT
A) create a new account called "suspense" and use it to correct the error.
B) notify the Management of the company immediately of the problem.
C) research the journal entries to try and find the error.
D) review all of the transactions for the past year for reasonableness.

Question

Quizplus · Accepted Answer

Creating a "suspense" account is not a standard method for correcting significant errors in financial statements. The correct approach involves identifying and correcting the specific error directly, often involving adjustments to the affected accounts after thorough investigation and with appropriate notification to management. Suspense accounts are typically used for temporary holding of uncertain amounts, not for correcting known significant errors.

Tantramar Geothermal Has Hired a New Accountant