What does prior period adjustment mean on the CPA exam?
Prior period adjustment. A correction of a material error in previously issued statements. It restates the earlier periods and adjusts opening retained earnings; it never runs through current income.
Defined against ASC 250-10-45-23.
Which CPA exam sections use prior period adjustment?
Prior period adjustment appears in the FAR section of the CPA exam.
Other terms defined against ASC 250-10
- change in accounting estimate: A revision to an estimate because new information arrived, applied prospectively in the period of change and later periods, never by restating prior statements.
- change in accounting principle: A switch from one acceptable principle to another, allowed only when a new standard requires it or the new principle is preferable.
Related terms
- retained earnings: Cumulative profit the entity has kept rather than paid out as dividends.
- net income: What is left after every revenue and expense of the period, including tax and discontinued operations.
- treasury stock: A company's own shares reacquired and not retired.
- accumulated earnings and profits: The C corporation earnings and profits an S corporation carries into S status.
- diluted earnings per share: Earnings per share computed as though every dilutive potential common share had been issued; antidilutive securities are excluded.
- earnings and profits: A corporation's cumulative economic capacity to pay a distribution out of earnings rather than out of capital.