Question

Which options are available to set for changing transactions that occurred prior to a closing date?

1) Reversing the transactions
2) Deleting the transactions
3) Modifying the transactions
4) Ignoring the transactions

Answer 1

After a closing date in accounting, the options to handle prior transactions are limited to ensure financial record integrity: reversing, modifying, or ignoring them, with modifying and deleting being generally frowned upon.

Step-by-step explanation:

In the context of accounting and finance, once a closing date has been established in a company's books, the typical options available for handling transactions that occurred prior to this date are very limited to ensure the integrity of the financial records. Here are the common options:

1. Reversing the transactions - This involves creating a new entry that counteracts the original entry. However, the original transaction remains on the books.
2. Deleting the transactions - It's generally considered bad practice to delete transactions, especially after financial statements have been finalized, as it can lead to discrepancies and potential legal issues.
3. Modifying the transactions - Similar to deleting, this is often not an ideal or accepted practice as it can compromise the accuracy of financial records.
4. Ignoring the transactions - Sometimes, certain transactions may be left as they are, without any adjustments, especially if they do not significantly impact the financial statements or if the closing date is not strictly enforced.

Changing transactions after a closing date should be handled with caution. If such changes are required, they are usually done in the subsequent period with proper documentation and rationale.