CORRECTION OF ERRORS

Question 1

What is the treatment of errors?

Answer 1

Correct MATERIAL errors retrospectively.

Question 2

When does the current period error occur and when is it discovered?

Answer 2

Occured during:
Current Period

Discovered:
Current period or after current period
Before issuance of FS

Question 3

When does the prior period error occur and when is it discovered?

Answer 3

Occured during:
Prior Period

Discovered:
Current period or after current period
Before issuance of FS

Question 4

How to correct the current period error for income statement?

Answer 4

Correcting Entry

(Ex: If you accidentally put advertising expense on supplies expense: Dr Advertising Expense Cr Supplies Expense)

Question 5

How to correct the prior period error for income statement?

Answer 5

Retrospective Restatement

Question 6

How to correct the prior period error for balance sheet errors?

Answer 6

Reclassifying entry

Note: same lang prior and current error treatment pag balance sheet

Question 7

How to correct the current period error for balance sheet errors?

Answer 7

Reclassifying entry

Note: same lang prior and current error treatment pag balance sheet

Question 8

What are the 3 types of errors?

Answer 8

1. Income statement errors
2. Balance Sheet Errors
3. Mixed Errors (Counter and noncounter-balancing)

Question 9

These are errors affecting income and expense accounts.

Answer 9

Income statement errors

Question 10

These are errors affecting asset, liability, and capital accounts.

Answer 10

Balance sheet errors

Question 11

These are errors affecting both the balance sheet and income statement.

Answer 11

Mixed Errors

Question 12

What are the two types of mixed errors?

Answer 12

Counterbalancing and noncounterbalancing errors

Question 13

Errors, if which not detected, are automatically corrected in the next accounting period.

Answer 13

Counterbalancing Errors

Question 14

Errors, if which not detected, are not automatically corrected in the next accounting period.

Answer 14

Noncounterbalancing Errors

Question 15

Examples of counterbalancing errors

Answer 15

Misstatements of the ff:
1. Accruals
2. Deferrals
3. Inventory, including purchases and sales

Question 16

What is an example of noncounterbalancing errors?

Answer 16

Misstatement in depreciation

Question 17

What is the difference between accrued expense and prepaid expense?

Answer 17

Accrued Expense: Expense incurred but not yet paid through cash
Prepaid Expense: Expense paid through cash but not yet incurred

Question 18

What is the difference between accrued income and prepaid expense?

Answer 18

Accrued Income: Income earned but not yet received the cash
Unearned Income: Cash received but income not yet earned

Question 19

Where are profit or losses closed?

Answer 19

Retained Earnings

Question 20

How do you find the Working Capital?

Answer 20

Current Assets - Current Liabilities

Question 21

When the effect on RE is being looked for (ex: 1/1/2021), how do you find this?

Answer 21

All the effects from prior periods.
This means all the changes from 2019 to 2020.

Question 22

When the effect on RE is being looked for (ex: 1/1/2021), how do you find this?

Answer 22

All the effects from prior periods.
This means all the changes from 2019 to 2020.