Error Correction Flashcards
(12 cards)
When should an error be discovered to be corrected in the period of discovery?
Before the FS are authorized for issue in that period
What kind of accounts are affected in statement of financial position errors?
Real accounts
What kind of accounts are affected in income statement errors?
Nominal accounts
True or False: Income statement errors or errors on revenue and expense accounts have effects on SFP accounts and on net income.
False. No effect.
When is a reclassifying entry necessary in income statement errors?
If the error is discovered in the same year it was committed.
If the income statement error is discovered in subsequent year, is there a need for a reclassifying entries?
No since the nominal accounts for the current year are correctly stated aka they are already closed so di na pwede galawin
What are the classifications of combined statement of financial position and income statement errors?
Counterbalancing and Non counterbalancing errors
These are errors which, if not detected, are automatically counterbalanced or corrected in the next accounting period. They correct themselves over two periods.
Counterbalancing errors
Counterbalancing errors normally include the misstatement of the following:
- Inventory (Purchases and sales)
- Prepaid expense
- Accrued expense
- Deferred Income
- Accrued Income
These are errors which, if not detected, are not automatically counterbalance or corrected in the next accounting period.
Noncounterbalancing errors
What is the best example of a noncounterbalancing error?
Misstatement of depreciation
