Lesson 20

Question 1

Companies generally do not correct errors that do not have significant effect on the presentation of the financial statements. True or False?

Answer 1

True

Question 2

What is a counterbalancing errors?

Answer 2

They are those that will be offset or corrected over two periods.

Question 3

What are non-counterbalancing errors?

Answer 3

They are those that are not offset in the next accounting period. - They take longer than two periods to correct themselves.

Question 4

If a company has closed the books in the current year, how will they account for counterbalancing errors?

Answer 4

1. If the error is already counterbalanced, no entry is needed.
2. If the error is not yet counterbalanced, make an entry to adjust the present balance of retained earnings.

Question 5

If a company hasn’t closed the books in the current year, how will they account for counterbalancing errors?

Answer 5

1. If the error is already counterbalance, make an entry to correct the error in the current period and to adjust the beginning balance of retained earnings.
2. if the error is not yet counterbalanced, make an entry to adjust the beginning balance of retained earnings.