Question

When preparing 2012 financial statements, you discover that depreciation expense was not recorded in 2011. Will the 2011 Depreciation Expense account be involved in correcting the entry?

Answer 1

The Depreciation Expense account for 2011 is not directly involved in correcting the entry in 2012. Instead, corrections are typically applied to the beginning balance of retained earnings for 2012, not the previous year's Depreciation Expense account.

Step-by-step explanation:

When an error is discovered in the financial statements of a previous year, such as the omission of depreciation expense in 2011, the correcting entry would typically be made in the year the error is discovered if the financial statements for the prior year (2011, in this case) are not being reconsidered.

Therefore, the Depreciation Expense account for 2011 would not be directly involved in the adjusting entry in 2012. Instead, the correction would be made to the beginning balance of retained earnings (or accumulated depreciation and retained earnings, depending on applicable accounting standards) for 2012 to reflect the depreciation that should have been recorded in 2011.