A company made an error in calculating and reporting depreciation expense in 2011. The error was discovered in 2012. The item should be reported as a prior period adjustment:
A) on the 2011 statement of changes in equity.
B) on the 2011 income statement.
C) on the 2012 statement of changes in equity.
D) on the 2012 income statement.
E) accounted for with a cumulative "catch-up" adjustment.

Question

Quizplus · Accepted Answer

Errors discovered in a subsequent year, such as an error in calculating depreciation, are corrected by making prior period adjustments. These adjustments are reflected in the statement of changes in equity of the year in which the error is discovered, in this case, 2012. This approach corrects the equity at the beginning of the year to what it would have been if the error had not occurred.

A Company Made an Error in Calculating and Reporting Depreciation