2. Prior Period Adjustments
a. Corrections of material errors made in prior periods.
b. Include arithmetic mistakes, unacceptable accounting, and
c. Reported in statement of retained earnings as corrections
(net of income tax effects) to the beginning retained
d. Changes in Accounting Estimates do not result in prior
period adjustments, but are accounted for in current and
a. Close credit balances in revenue accounts to Income
b. Close debit balances in expense accounts to Income
c. Close Income Summary to Retained Earnings
d. Close Dividends account to Retained Earnings (if
dividends were recorded in a Dividends account).
B. Statement of Stockholders’ Equity
1. Provided by most companies rather than a separate statement
of retained earnings; the statement of stockholders’ equity
includes changes in retained earnings.
2. Lists the beginning and ending balances of each equity
account and describes the changes that occurred during the
C. Reporting Stock Options
1. Stock options are rights to purchase common stock at a fixed
price over a specified period of time. As stock prices rise
above the fixed price, the option value increases.
2. Stock options are said to motivate employees and managers..
VII. Global View—Compares U.S. GAAP to IFRS
A. Accounting for Common Stock—both systems have similar
procedures for issuing common. Rights and responsibilities and
terminology, may differ due to legal and cultural differences.
B. Accounting for Dividends—consistent under both systems for
cash and stock dividends, and stock splits.
C. Accounting for Preferred Stock—similar under both systems, but
redeemable preferred stock is reported between liabilities and
equity in U.S. GAAP balance sheets but as a liability in IFRS.
Differences also exist in reporting convertible preferred stock.
D. Accounting for Treasury Stock—Both systems are consistent as
applied to treasury stock purchases, reissuances, and retirements.