The treatment of items that clearly belong to past reporting period is a long-standing problem.One way to handle this problem is to make adjustments to the retained earnings.The problem with this approach is that:

Question

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Making adjustments to retained earnings to handle items from past reporting periods could lead to manipulation of profit for the current period. This is because adjustments to retained earnings can affect the current period's profit, and may not reflect the actual earnings for the current period. Therefore, this approach may not be the best way to handle items from past reporting periods.

The Treatment of Items That Clearly Belong to Past Reporting