AP 06-02 Correction of Error, Cash/Accrual, and Single Entry Accounting

Correction of Errors
1.) Counter - self correcting error; auto corrected I ACCRU DIE
Balancing Error Retained Earnings Inventory, end
(CBE) - Same amount of error but different signs Accruals (All)
Deferral (Income and Expense Approach)
CY PY
(XX) XX
XX (XX)
2.) Non Counter - If not discovered, the error shall continue
Balancing Error to persist
(NCBE) - Ex. Depreciation, unrecorded capital
assets, deferral using BS approach
CBE: 1.) Inventory, end CY SY
Beg - ↑
CY PY Effect to RE Purch - -
(XX) XX Zero GAS - -
XX (XX) Zero EI ↑ -
COS ↓ ↑
Inventory, end Inventory, beg
NI ↑ ↓
↑ ↑
Same amount; opposite signs

CBE: 2.) Accruals Effect to NI CY SY RE

- Cost incurred/income earned Accrued Income ↓ 100 ↑100 -

Accrued Expense ↑200 ↓200 -

CBE: 3.) Deferrals (Income and Expense Approach)

Effect to NI CY SY RE

Unearned Revenue ↑ ↓ -

Prepaid Expense ↓ ↑ -

If Asset/Liability Approach (NCBE)

Effect (expired; not adjusted) CY SY RE

Unearned Revenue Liability Liability ↓

Prepaid Expense Asset Asset ↑

 PAS 8
How you account for a specific transaction?
Accounting Principle Ex. Inventory (Weighted Ave to FIFO)
- Actual Treatment
Mere estimates
- (NRV of inventories, depreciation, allowance for
Accounting Estimates
doubtful accounts)
- Current and prospective application
Errors Wrong

FROM TO TREATMENT
Acceptable Policy Acceptable Policy Change in accounting
policy Retrospective Application
Non acceptable Policy Acceptable Policy Correction of Errors