To gain understanding and to provide working knowledge of accounting concepts, detailed procedures and documentation involved in financial accounting system.Full description
Recognition Measurement Presentation Disclosure of elements of Financial Statements
Income Statement Errors -
These are corrected before the FS are authorized for issue.
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Materials errors - It is NOT discovered until subsequent period, and these PPE are corrected in the comparative info. Presented in the FS for that subsequent period.
No Reclassifying Entry – discovered in subsequent year. Combined Statement of Financial Position errors and Income statement errors
a. Was available when FS where authorized for issue b. Could reasonably be expected to have been obtained in preparation and presentation of FS.
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Affect BOTH the SFP and IS because it result in misstatement of NET INCOME.
Classified as:
Include:
a. Counterbalancing errors b. Non-counterbalancing errors
Mathematical mistakes Applying accounting policies Oversights or misinterpretation Fraud
Counterbalancing errors -
Treatment of prior period error -
Affect nominal accounts only, the improper classification of revenue and expense account. NO EFFECT on Financial position and Net income.
Reclassifying Entry – discovered in the same year it is committed.
Prior Period Errors - omissions and misstatements in the entity’s FS for 1 or more periods arising from failure to use / misuse reliable info that:
1. 2. 3. 4.
Affect real accounts only, the improper classification of an asset, liability and capital account. An entity simply made to reclassify the account balance.
Correct material PPE retrospectively in the 1st set of FS authorized after their discovery by: a) Restating the comparative amounts b) Restating opening balance of A.L.E. for earliest prior period if error occurred before earliest period presented.
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If not detected it automatically counterbalance / corrected in the next accounting period. Errors correct themselves over 2 periods.
Effect of counterbalancing errors 1. Income statement is incorrect for 2 successive periods 2. SFP at the end of 1st period is INCORRECT 3. SFP at the end of 2nd period is CORRECT
Types of Errors
Counterbalance errors include: Misstatements
1. Statement of Financial Position errors 2. Income statement errors 3. Combined Statement of Financial Position errors and Income statement errors
a. b. c. d. e.
1
Inventory purchases and sales Prepaid expense Accrued expense Deferred income Accrued income
Non-counterbalancing errors -
Example is misstatement of depreciation
If not detected it does NOT automatically corrected in next accounting period. If NET INCOME of one year is under/overstated, Net income of subsequent year is NOT affected.
Effects of Non-counterbalancing errors: 1. IS of the period w/c error committed is incorrect but succeeding Income statement is NOT affected. 2. SFP of the year of error and succeeding SFP are INCORRECT until error is corrected.
