Prior Period Adjustment
For example: You “forgot” to depreciate your office equipment in the amount of $35,000. The tax rate is 20% Assume no deferred taxes are present.
Journal entry: (year of discovery)
Retained Earnings 28,000
Tax refund 7,000
Accumulated Depreciation 35,000
- If comparative financial statements are presented, adjust retained earnings for the first period reported. Use correct information during subsequent periods.