Essay: Prior period adjustments in Accounting
Prior period adjustments are those which can be specifically attributed to a particular period before the current financial year and cannot come under the definition of subsequent events, which would require them to be treated in the current year’s financial statements. They are also dependent on being determined by parties, other than the management and could not reasonably have been determined before this determination about them was made. Items that are deemed as prior period adjustments are excluded from the year’s net income calculations and are inserted into the period into which it is deemed they belong.
prior period adjustment. This is because it was missed due to mistake of the book keeper and passed under the eyes of the management and should reasonably have been determined before. Depreciation figure should be altered.
This does not fall under prior period adjustments as the rate changed later on and the company could not have known it was too low before. The additional bad debt expense will be included in expense portion of income statement and used to calculate a revised net income figure which would be lower by the stated amount.
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