FAR Module 9B Flashcards
What type of errors affect two periods?
Non-systematic errors
What type of errors affect only one period?
Classification errors
Nonsystematic errors in adjusting entries that affect two periods are known as what type of errors
Self-correcting or counterbalancing errors
What entries are made to correct errors in an account in the current period?
Correcting or adjusting entries
What entries are made to adjust amounts reported in prior periods
Worksheet entries. Journal entries are not recorded to correct accounts of prior periods.
Define accounting errors
Accounting errors are errors in recognition, measurement, presentation, or disclosure in the financial statements. An error can occur from mathematical mistakes, mistakes in applying GAAP, or oversight of fact that existed when the financial statements were prepared.
A change in accounting principle from non-GAAP to GAAP is what
A correction of an error
When an error occurs what footnote disclosures are required
Disclosures should include that the previously issued financial statements were restated. Also include a description of the error. This description will include the gross effect and net effect from applicable income taxes on the net income of the prior period, as well as the effects on retained earnings and net income.
If ending inventory is overstated how will that affect cost of sales, net income, and retained earnings
Cost of sales will be understated. Net income will be overstated. Retained earnings will be overstated.
If beginning inventory is overstated how will that affect cost of sales, net income, and retained earnings
Cost of sales will be overstated. Net income will be understated. Retained earnings will be understated.
What depreciation methods subtract salvage value in their calculations
Units of production, straight-line depreciation, sum of years digits
What depreciation method does not subtract salvage value in it’s calculation
The double declining balance method
Changing from the cash basis of accounting to the accrual basis of accounting will cause what effect on the financial statements
A prior period adjustment resulting from the correction of an error
If it is discovered that an error occurred in a prior-year financial statement after the statements were issued what must be done
The financial statements must be restated to reflect the correction of period specific effects of the error. This is also true under IFRS
If the company fails to record a sale on account how will that affect the financial statements
Assets and net income will be understated
