Q: The company I work for is closely held; therefore financial statements are unaudited. We do, however, desire to comply with generally accepted accounting principles. After our financial statements were published, to investors and lenders, it was discovered that we had failed to accrue certain royalties on sales made during the year. It has been suggested that we should now record these royalties as a charge to retained earnings. I believe they should be a charge against current earnings.
What does GAAP require?
A: Neither. According to generally accepted accounting principles, you should restate that period’s financial statements and accrue the royalties that properly belong to that period.
Tax & Accounting Analyst
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