Question

Which of the following would cause a "Prior Period Adjustment" to be reported on the 2025 Statement of Retained Earnings?

A. Failure to Accrue Revenue at 12/31/24, but not 12/31/21 Depreciation Overstatement.
B. 12/31/21 Depreciation Overstatement, but not Failure to Accrue Revenue at 12/31/24.
C. Both Failure to Accrue Revenue at 12/31/24 and 12/31/21 Depreciation Overstatement.
D. Neither Failure to Accrue Revenue at 12/31/24 nor 12/31/21.

Answer 1

Cause of a "Prior Period Adjustment in 2025 Statement of Retained Earnings:"

A. Failure to Accrue Revenue at 12/31/24, but not 12/31/21 Depreciation Overstatement.

Step-by-step explanation:

A company's failure to accrue revenue in accordance with the accrual concept and revenue recognition principle means that there is a "Prior Period Error" which must be corrected retrospectively in the financial statements (Retained Earnings). Retrospective restatement involves the correction of the error arising from the recognition, measurement, and disclosure of amounts of elements of financial statements. The restatement is done as if a prior period error had never occurred.