#Accounting_Standards
#standard_6
Regardless of the source of the error, considering the impact that the error will have on the financial statements of different periods, the following classification can also be considered:
1. Errors affecting the balance sheet
2. Errors affecting the profit and loss statement
3. Errors affecting the balance sheet and profit and loss statement
3-1. Mistakes that are undone after two periods
3-2. Mistakes that are not reversed after two periods
1. Errors that only affect the balance sheet:
Some errors affect only the balance sheet accounts, namely assets, liabilities, and equity. For example, a long-term liability may be mistakenly recorded as trade accounts payable, which is a current liability. This misclassification will only affect the balance sheet. When the mistake is discovered, the misclassification is corrected and if the financial statements have comparative items, these items are presented again.
2. Mistakes that are only effective on the profit and loss statement:
Such errors arise due to incorrect classification of income and expenses. For example, the company may include guaranteed profit income as sales revenue. This misclassification does not affect net profit for the period. Therefore, if such a mistake has occurred in previous periods, there is no need to make a correction. Only if financial statements containing errors are presented in a comparative manner, re-presentation is necessary to correct the classification.
3. Mistakes that affect the balance sheet and profit and loss statement:
Some errors affect the balance sheet and profit and loss accounts simultaneously. For example, failure to register the deferred wages of employees causes underestimation of expenses and salary liabilities and overestimation of net profit and accumulated profit and loss. This category of mistakes can be divided into two groups:
3-1. Mistakes that are neutralized after two periods:
Such mistakes, even if they are not discovered, will be corrected by themselves after two periods.
For example, if the company did not record 100 million rials in deferred salary expenses, in the year of the error:
The balance of salary expenses is 100 million rials less than the reality.
Assuming that the tax effect is ignored, the net profit is 100 million rials more than the reality.
The salary debt is 100 million rials less than the reality.
The accumulated profit is 100 million rials more than the real one.
In the next year, when the company pays the wages in cash, it records the wage cost 100 million rials more, and as a result, at the end of the second year:
Assuming that the tax effect is ignored, the balance of salary expenses is 100 million rials more than the reality.
The net profit is 100 million rials less than the reality.
The salary debt balance is correct.
The retained earnings balance is correct.
The wage expense account is a temporary account and is closed at the end of the period. As a result, at the beginning of the next year, the effect of the mistake has been completely neutralized. Most of the errors that affect the balance sheet and profit and loss statement are of the type of neutralizing errors.
It should be noted that even though such mistakes are neutralized. Taking into account the time of discovering such mistakes, necessary corrective measures should be taken. If the mistake is discovered in the second period, in order to correctly show the wage cost and net profit of the period, a correction record is necessary.
If the mistake is discovered in later periods (that is, after the effect of the mistake is neutralized), the financial statements containing the mistake, which are presented in a comparative form, will be presented again, but there is no need to make a correction.
Tax financial channel
https://t.me/joinchat/AAAAAEYa-j9tdF6hSKk-5A
This post is written by Amirali52900