Answer to Question #125908 in Accounting for Everlyn

Question

As Carlos is closing the books for his small business at the end of the fiscal year, he notices a mistake on a transaction from several months ago. He can't fix it by adjusting the original transaction, because several other transactions and reports depend on that transaction. What should Carlos do?
A. He should make a general journal entry to move the money.
B. He should make a Correction Invoice and move the money.
C. He should write a check to pull the money from an Equity account to where it needs to be.
D. None of these; he'll have to adjust the original transaction.
Explain why the answer is correct.

Answer 1

Answer: A. He should make a general journal entry to move the money.

The function of correcting entries in accounting is to fix a mistake posted in the books. A mistake on a transaction requires correcting journal entries as soon as the error is identified. The correcting general journal entry will help ensure that the financial records are accurate. As part of prior period adjustments, by correcting the entry, the opening period’s retained earnings will be consequently be adjusted to reflect the true cash position of the enterprise.