Under traditional manual bookkeeping, an error relating to a previous accounting period is discovered after the accounts for that period have been closed. Which account is normally used for its correction?
Correct answer: B. Profit and Loss Adjustment Account
- A. General Reserve Account
- B. Profit and Loss Adjustment Account
- C. Suspense Account
- D. Current Trading Account
Explanation
A prior-period error is normally corrected through the Profit and Loss Adjustment Account so that the current period's ordinary profit is not distorted. A suspense account is used temporarily for unresolved trial balance differences, not as the normal final treatment of a known prior-period error.
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About Correction of Errors and Suspense Accounts
Accounting errors are corrected by journal entries after identifying whether the mistake affects one account or both sides of double entry. Suspense accounts temporarily hold an unexplained trial balance difference and must be cleared, while errors of omission, commission, principle, original entry and reversal require different corrections.
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