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The revenue and expense accounts that are recorded into the new year will impact the new year income statement After the financial statements are distributed the adjusting entry can be permanently removed. In order to record, the revenue and expense for the prior year, we need to use the retained earning account instead.

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Now, you need to record this expense in the current year The accounting rule applied is to debit the increase in assets” and “credit the decrease in expense” (modern rules of accounting). Prior period expenses a/c is debited to record the expense

Cash/bank a/c (or accounts payable a/c if the expense is not yet paid) is credited to reflect the payment or liability.

Prior period adjustments are made in the financial statements to correct the incomes or expenses that arise in the current year due to omissions or errors in the preparation of financial statements of one or more periods in the past. For example, if sunny forgot to record $2,360 of straight line depreciation after issuing the financial statements for the prior year, he would make the following entry to correct the overstatement of net income in the prior year Prior period adjustment, depreciation expense Use the lesson learned to remind people to disclose all future purchase obligations in a timely way, esp as you approach quarter/year end

Tighten up close checklist steps, purchasing controls Want to join the conversation Submit an answer or ask a question by emailing us at content@proformative.com. (this records that you already paid it or received the bill, but you know the bill covers a time period in the next fiscal year.)

Prepaid expense account and the related expense account

They are an advance payment for the business and therefore treated as an asset