After the Julie Company issued its previous years’ financial statements, it noti
ID: 2469927 • Letter: A
Question
After the Julie Company issued its previous years’ financial statements, it noticed that it incorrectly calculated depreciation expense and, thus, disclosed this fact as a prior period adjustment in its current years’ financial statements. (This difference also did not affect any cash balances, since Julie maintained an operating loss for both periods.) However, Julie did not issue comparative financial statements in the current year. Julie now wonders how to disclose this prior period adjustment in its current year’s Statement of Cash Flows. Facts, Issue, Conclusion, Authorities, Applying Authorities:
Explanation / Answer
Since this is a prior period adjustment, it need to be adjusted ( net of tax ) from opening retained earnings in statement of change in retained earnings. Stating that, it is clear that any prior period item will not have any effect on Net income of business. These do not not effect current year cash inflows or outflows