At the end of 2015, the payroll supervisor for Claro, Inc. failed to accrue $24,790 in commissions for the outside salespersons. The cost was recorded in 2016 when the commissions were paid and Commissions Expenses was debited and Cash credited for the full amount. The error was not discovered until late in 2016 while reconciling year-end expenses for 2016. What is the proper treatment to correct
the error? (Ignore income taxes.)
A) Do nothing, the error has counterbalanced.
B) Accrue $24,790 in commission expense for 2016.
C) Debit 2016 beginning retained earnings and credit commission expense for $24,790.
D) There is no error in either year because the commissions are recorded when paid.
Answer: C
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