Q21RQ - Horngren'S Financial And Managerial Accounting

Question

What is a prior-period adjustment?

Step-by-Step Solution

Answer

A prior-period adjustment is a amendment to retained earnings for an error in an prior period.

Step 1: Introduction to topic

Financial statements are records of the operational activities and the financial performance of a company during the period of time. It also shows the flow of cash and financial position of the company. 

Step 2: Prior-period adjustment

A prior period adjustment is the rectification of an accounting error that occurred previously and was reported on a prior year's financial statement, net income taxes.In other words, it's a approach to fix past reporting error of financial statements.