This week we spent a good amount of time on how I use the Prior Period Adjustments account to keep the Retained Earnings account clean. When you have issues from old years that were never fixed you don’t want to post anything in those years because you’ll upset the integrity of the books agreeing to the tax return.
So you post the entries to correct these things in the current year, and you want them on the P&L, not the balance sheet, so you don’t wind up with permanent differences in accounts like “Opening Balance Equity”.
Got questions? Post your comments below!
Get the full experience with write ups and downloads where applicable here