The prior year adjustments can be shown on the Statement of Retained Earnings and Format B of the Statement of Net Assets (Format C in the 1- 9 columns statement format).
In order to perform a prior period adjustment (PPA), the following steps should be undertaken:
Create a new account in the Caseware trial balance for the PPA and map to 277.3720.
Post the correct adjusting entry for the prior year to reflect the change in the prior year figures.
Statement of Retained Earnings must be shown separately and the prior period adjustment check box selected.
Perform PPA in current year with adjustment to new PPA account you created in Step 1.
Be sure you have checked off the Prior period adjustment checkbox in the retained earnings section.
After these steps, you should have retained earnings numbers that balance for current and prior years.
Example prior period adjustment
In this example, $100,000 in sales was not recorded until the current year. There should have been an entry to record:
DR. Accounts Receivable
100,000
CR. Sales
100,000
The following steps were completed for the prior period adjustment:
In the Caseware trial balance, there was not an existing account for PPAs. To create a new account, while in the trial balance in Caseware, select the New button and fill in the information about this account.
Determine the journal entry which should have been performed in the prior year and post an adjusting entry to the prior year, in this case:
DR. Accounts Receivable
100,000
CR. Sales
100,000
Post an adjusting entry to record the PPA in the current year. In this case, the adjustment was:
DR. Sales
100,000
CR. Prior period adjustment
100,000
This will adjust current year retained earnings as if prior year adjustment had been made.
In financial statements, go to Retained Earnings Statement and check off the Prior period adjustment checkbox. More lines will appear in the section.
Make sure the new Caseware PPA account is properly mapped in, you should see the 100,000 adjustment you made from the journal entry next to the Prior period adjustments line item.
Compare prior year-end of year retained earnings balance with current year as restated balance. They should be equal.
