Problem: How to recognize income and expenses directly to Retained Earnings due to the correction of prior-period errors?

Solution: Adjust the opening balance of Retained Earnings via a manual journal entry in the General Ledger.

To correct a prior-period error, record a manual journal entry in the General Ledger:

  1. Create a new journal entry.

2. Specify the following lines:

    • Debit: Retained Earnings (the GL account for retained earnings)

    • Credit: the appropriate asset, liability, or expense account (e.g., Other Administrative Expenses), depending on the nature of the correction.

 

3. In the Transaction Content (description), indicate that this entry represents a correction of a prior-period error.

4. Date the journal entry in the current reporting period as an adjustment to opening Retained Earnings.

5. Post the journal entry to finalize the correction.


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#RetainedEarnings#PriorPeriodErrors#ProfitAndLoss #GeneralLedger

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