A prior period adjustment to Q’s cash is recorded; which periods should be consolidated?

• A. January and February
• B. There is no way to do a prior period entry like this.
• C. February only
• D. January only

Answer: (A)

When a prior period adjustment to cash is recorded, you’re correcting a balance from a period before the current reporting cycle. In consolidation, you must present the earliest period shown with the corrected figures and propagate the effect into the following period's opening balances. Therefore, the January figures must be restated, and February’s cash balance must reflect that corrected opening balance. That’s why both periods are consolidated. Restating only February would leave January untouched, and consolidating only January would ignore the impact on February’s opening and current period results.