Correction of prior years' errors directly affect the:
A)retained earnings account.
B)extraordinary gains and losses of the period when the correction of prior years' error is made.
C)net income of the period
D)retained earnings account through the period's net income.

Question

Quizplus · Accepted Answer

Correction of prior years' errors directly affect the retained earnings account because the adjustments are made to correct the balance sheet accounts which in turn affects the retained earnings account. The correction of prior years' errors does not directly affect the net income or extraordinary gains and losses of the current period. However, if the error was related to a prior period's net income, the adjustment may affect the current period's net income indirectly by impacting the beginning balance of the retained earnings account.

Correction of Prior Years' Errors Directly Affect The