A prior period adjustment is reported as:
A) An unusual item in the income statement
B) An addition to (or deduction from) net income in the income statement
C) An addition to (or a deduction from) the beginning balance of retained earnings
D) An addition to (or deduction from) the ending balance of retained earnings

Question

Quizplus · Accepted Answer

A prior period adjustment is a correction of an error in the financial statements of a previous period. It is not considered an unusual item in the income statement, nor is it an addition to or deduction from net income in the current period. Rather, it affects the beginning balance of retained earnings in the current period and is reported as an adjustment to the prior period financial statements. As such, the adjustment is reflected as an addition to (or a deduction from) the beginning balance of retained earnings on the current period's balance sheet.

A Prior Period Adjustment Is Reported As