equivalents. The note called Use of estimates says, the preparation of financial statements in conformity with the U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The third note is called income taxes, and it says, for financial reporting purposes, the Company has elected to use the taxes payable method. Under that method, income tax expense represents the amount of income tax the Company expects to pay based on the Company’s current year taxable income. These notes, along with others, are included in the financial statement to define the standards or the why that the financial information was recorded, this is done so that anyone else that reviews the information can understand the process of gathering the information and how to understand it.
When Peyton Approved is working on reporting their financial statements, the accountants may make some errors but that is nothing to worry about because there is a four-step plan for error correction. Step one is “Analyze the original erroneous journal entry and determine what accounts and/or amounts were recorded in error” (Wahlen, J. M., Jones, J. P., Pagach, D. P., 2017). Step two is “Determine the journal entry that should have been recorded” (Wahlen, J. M., Jones, J. P., Pagach, D. P., 2017). Step three is “Evaluate whether the error has caused additional errors in other accounts” (Wahlen, J. M., Jones, J. P., Pagach, D. P., 2017). Step four is “Prepare the correcting entry (or entries). Any corrections of the revenues and expenses for prior years are recorded as adjustments to Retained Earnings” (Wahlen, J. M., Jones, J. P., Pagach, D. P., 2017). Once all these steps have been accomplished then the adjustments must be transferred over to the revised balance statement for the company because all the past years’ accounts have been closed the retained earnings account. Resources:
AccountingForManagement.com, “Return on Total Equity or Shareholders’ Investment Ratio” retrieved from - worth/ Financial Accounting Foundation, “Accounting Standards” retrieved from 351027541272 Financial Accounting Series – comprehensive income (topic 220), retrieved from: ? sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=2ahUKEwj348GUiI _gAhUxpIMKHTetDE4QFjAAegQICBAC&url=https%3A%2F%2Fwww.fasb.org%2Fcs %2FBlobServer%3Fblobkey%3Did%26blobwhere%3D1175825902968%26blobheader %3Dapplication%252Fpdf%26blobcol%3Durldata%26blobtable %3DMungoBlobs&usg=AOvVaw0k7JhhRuhX2E00Am4UTeJT , reviewed on: 1/27/2019