USA Prior period adjustment

[CPAisgreat]

Hi, guys,

I'm new to this forum. I'm seeking an advise on how to make prior period adjustment.

Here is the situation,

There were accounting errors occurred in both 2012 and 2013.

I know we have to correct those errors by adjusting the beginning retained earning (Comparative financial statements not presented), but since there were errors in both 2012 and 2013, how do we account for that? On what date should the adjusted journal entries be made?

Thank you.

 

[kirby]

One thing that matters is if the entries need to be effective in a particular quarter of a year or not. For example, if you issue quarterly financial statements then you would want to be sure to get that entry into the proper quarter. If not then you can just make the entry effective 12/31/xx.

It is cleaner if you can actually post these entries to your GL. If so first post the 2012 entry into 2012 GL and create your new adjusted 2012 financial statements. Then post your 2013 entry into 2013 GL and again create new adjusted 2013 financial statements. Now your 2014 GL will include those postings.

If you cannot post to 2012 or 2013 in the GL anymore then do it as a worksheet adjustment to your 2012 and 2013 financial statements, but then post both adjustments to the GL effective 1/1/14 so your 2014 GL now carries these adjustments. Make sure your worksheet adjusted 2013 year end financials equity section equals your adjusted 2014 GL for beginning equity.

 

[CPAisgreat]

Fail to record expense that should to reduce AR

Thank you so much for your help.

I have another question to follow.

Commission expense was not recorded that should be used to reduce Account receivable in 2012 and 2013. With that said, Account receivable is overstated while the commission expense is understated in 2012 and 2013.

I'm wondering if it is ok to make adjusted journal entry by Dr Retained Earning and Cr Account Receiveble dated 1/01/2014 to bring down the Account Receivable due to the error.

 

[kirby]

If you cannot (or don't want to) re-open your 2012 and 2013 books to post the adjustment in there then yes this is what you would do to just post the effect into your 2014 books.

 

[Annumilda]

Hello Sir, can you help me?

 

[kirby]

Just post your question. Should place it in a separate posting