USA Prepaid expense

[J Bayliss]

I am new to my current job and am in the process of really digging into our financial statements to check for accuracy. I noticed a large balance in our prepaid expense account and after researching I discovered a JE from 12/31/2012 that debited the prepaid expense account. Unfortunately the previous person never entered the JE to move this to an expense account. My question is, do I just go back and create a JE on 1/1/2015 to debit retained earnings and credit prepaid expense?

 

[kirby]

First, show your proof to your boss and recommend an adjustment. Then follow whatever boss directs. What boss should say is to adjust in current accounting month. That is DR Expense and CR prepaid expense.

 

[smallbushelp]

How large of a balance is it? You should determine if it's material to the prior years financial statements and tax returns. If so, would it be necessary or meaningful for the company to post a prior period adjustment? If the answers are yes, then the best course of action would be a prior period adjustment. But if not, then a current period adjustment would be fine. As the accountant, be prepared with your recommendation when you approach your boss.