QQuestionAccounting
QuestionAccounting
A prior period adjustment for understatement of net income will
show as a gain on the current year's Income Statement.
be debited to the Retained Earnings account.
show as an asset on the current year's Balance Sheet.
be credited to the Retained Earnings account.
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Answer
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Step 1: Understand the problem
The problem describes a prior period adjustment for understatement of net income. This adjustment is made to correct an error in a previous financial period that resulted in understating the net income.
Step 2: Identify the accounting treatment
When correcting an understatement of net income from a prior period, the adjustment will be made in the current period's financial statements. Since the error resulted in understating the net income, the adjustment will increase the current period's net income.
Final Answer
The prior period adjustment for understatement of net income should be: - Credited to the Retained Earnings account.
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