Final answer:
Allison should use the Matching Principle to correctly report the cost of furniture and fixtures in the income statement, which involves capitalizing the cost and depreciating it over the asset's useful life rather than expensing the full amount in one period.
Step-by-step explanation:
When Allison includes the full cost of furniture and fixtures as an expense in the income statement, it's important to ensure that the cost is reported in accordance with accounting principles. In this scenario, the appropriate accounting standard to use would be the Matching Principle of accrual accounting. According to this principle, costs should be matched to the revenue they help to generate within the same period. Therefore, rather than expensing the full cost of long-term assets like furniture and fixtures in one period, these items should be capitalized and depreciated over their useful life. This method of depreciation aligns the expense with the periods in which the assets aid in generating revenue, which is typically spread over several years.
Error correction would involve adjusting entries to remove the full expense from the current period and recording it as a fixed asset on the balance sheet. Subsequently, the correct portion of the expense should be recorded as depreciation expense in the income statement. This adjustment ensures that the financial statements present a fair view of Allison's financial results for the period and adhere to the Matching Principle.