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Retained Earnings: Prior Period Adjustments definitions Flashcards

Retained Earnings: Prior Period Adjustments definitions
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  • Retained Earnings
    Equity account reflecting cumulative net income minus dividends, adjusted for prior period errors or changes in accounting principles.
  • Prior Period Adjustment
    Correction made to the beginning balance of equity to fix errors or reflect changes in accounting principles from previous periods.
  • Error
    Mistake in financial records, such as unrecorded expenses or revenues, requiring correction to ensure accurate financial statements.
  • Change in Accounting Principle
    Switch in methods or rules used for financial reporting, often involving inventory costing, to improve comparability across periods.
  • Cumulative Effect
    Total impact on financial statements from correcting an error or changing a principle, applied to the beginning balance of equity.
  • Debit
    Entry on the left side of an account, used to decrease equity or increase assets, such as reducing retained earnings for prior expenses.
  • Credit
    Entry on the right side of an account, used to increase equity or decrease assets, such as increasing retained earnings for prior revenues.
  • Prepaid Expenses
    Assets representing payments made in advance for services or goods, which may require adjustment if misclassified.
  • Inventory
    Current asset representing goods held for sale, whose valuation can change with different costing methods or corrections.
  • FIFO
    Inventory costing method assuming earliest goods purchased are sold first, affecting reported inventory and cost of goods sold.
  • LIFO
    Inventory costing method assuming latest goods purchased are sold first, impacting inventory and expense figures.
  • Weighted Average Method
    Inventory valuation approach averaging costs of all units available for sale, influencing both inventory and cost of goods sold.
  • Cost of Goods Sold
    Expense representing the direct costs of producing goods sold during a period, affected by inventory accounting methods.
  • Comparability
    Quality of financial information that allows users to identify similarities and differences across periods or entities.
  • Net Income
    Profit remaining after all expenses are deducted from revenues, forming the basis for changes in retained earnings.