medium · Financial Accounting accounting-cycle-financial-statements
A firm identifies an arithmetic error in its depreciation calculation from two years ago that resulted in a material understatement of expense.
How should this be reported in the current year's financial statements?
- Only in the footnotes, with no changes to the primary financial statements.
- As a 'catch-up' depreciation expense in the current year's income statement.
- As a restatement of prior periods, adjusting the beginning balance of Retained Earnings.
- As a change in accounting estimate reported prospectively.
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