Final answer:
The statement is false. Under GAAP, corrections of prior period errors are treated with retroactive restatement, not prospectively on the current period's income statement.
Step-by-step explanation:
The statement that GAAP requires that corrections of errors be handled prospectively and shown in the current operating section of the income statement in the year the correction is made is false. According to Generally Accepted Accounting Principles (GAAP), corrections of errors from prior periods are not treated prospectively in the income statement. Instead, they are treated as prior period adjustments. This means that the errors are corrected retroactively by restating the comparative financial statements to correct the errors. The restatement adjusts the balances of affected accounts as if the error had never occurred, and these adjustments are made to the earliest period presented where the error occurred.
The incorrect income and expense amounts are corrected, and the amended balances are carried forward. Corrections of errors that are discovered in the current year but occurred in prior years are reported as adjustments to the beginning balance of retained earnings in the statement of shareholders' equity. The current year's income statement should only reflect the current year's operations and is not used to correct prior period errors. To conclude, GAAP mandates error correction through restatement rather than a prospective approach in the operating section of the current period's income statement.