CORRECTION OF ERRORS Flashcards
What is the treatment of errors?
Correct MATERIAL errors retrospectively.
When does the current period error occur and when is it discovered?
Occured during:
Current Period
Discovered:
Current period or after current period
Before issuance of FS
When does the prior period error occur and when is it discovered?
Occured during:
Prior Period
Discovered:
Current period or after current period
Before issuance of FS
How to correct the current period error for income statement?
Correcting Entry
(Ex: If you accidentally put advertising expense on supplies expense: Dr Advertising Expense Cr Supplies Expense)
How to correct the prior period error for income statement?
Retrospective Restatement
How to correct the prior period error for balance sheet errors?
Reclassifying entry
Note: same lang prior and current error treatment pag balance sheet
How to correct the current period error for balance sheet errors?
Reclassifying entry
Note: same lang prior and current error treatment pag balance sheet
What are the 3 types of errors?
- Income statement errors
- Balance Sheet Errors
- Mixed Errors (Counter and noncounter-balancing)
These are errors affecting income and expense accounts.
Income statement errors
These are errors affecting asset, liability, and capital accounts.
Balance sheet errors
These are errors affecting both the balance sheet and income statement.
Mixed Errors
What are the two types of mixed errors?
Counterbalancing and noncounterbalancing errors
Errors, if which not detected, are automatically corrected in the next accounting period.
Counterbalancing Errors
Errors, if which not detected, are not automatically corrected in the next accounting period.
Noncounterbalancing Errors
Examples of counterbalancing errors
Misstatements of the ff:
1. Accruals
2. Deferrals
3. Inventory, including purchases and sales
What is an example of noncounterbalancing errors?
Misstatement in depreciation
What is the difference between accrued expense and prepaid expense?
Accrued Expense: Expense incurred but not yet paid through cash
Prepaid Expense: Expense paid through cash but not yet incurred
What is the difference between accrued income and prepaid expense?
Accrued Income: Income earned but not yet received the cash
Unearned Income: Cash received but income not yet earned
Where are profit or losses closed?
Retained Earnings
How do you find the Working Capital?
Current Assets - Current Liabilities
When the effect on RE is being looked for (ex: 1/1/2021), how do you find this?
All the effects from prior periods.
This means all the changes from 2019 to 2020.
When the effect on RE is being looked for (ex: 1/1/2021), how do you find this?
All the effects from prior periods.
This means all the changes from 2019 to 2020.
