Question

1) What action is required when it is discovered that a five-year insurance premium payment of $50,000 two years ago was debited to insurance expense? (ignore taxes)
2)Suppose the error described in the previous question is not discovered until six years later. What action will the discovery of this error require?

Please answer the second part of the question.

Answer 1

No correction entry required in second case

Error is discovered after the expiry of insurance policy. The last five years accounts already closed and in the 6th year policy is no longer valid. Therefore in the 6th year financials no correction required.

If this error found before five years i,e before expiry of insurance policy accordingly we need to correct the error in the first case.