Lesson 15 of 25 · 6 min
When the printed figure does not match: a prior-period adjustment
A line that belongs to February can appear in April, and nothing on April's face will reconstruct it.
March on the sample closes. The chain is clean. A later statement can still carry a line that is not April's interest. Invent this: February was first printed at 6.72 percent rather than 6.97 percent. $1,837,260.01 × 0.0672 × 28 ÷ 360 = $9,602.745652…, which prints as $9,602.75. The correct February product is $9,959.99. The difference of the two printed figures is $357.24.
That $357.24 has to appear somewhere. It does not reopen the February page. It arrives as a prior-period interest adjustment on a later statement, here the April one. April's own product at 7.22 percent for 30 days is still $11,182.36. The adjustment sits beside it. The April close becomes $1,858,563.47 + $11,182.36 + $357.24 = $1,870,103.07, not the $1,869,745.83 that April would have shown without the correction.
April's own four inputs cannot reproduce $357.24. $1,858,563.47 × 0.0722 × 30 ÷ 360 is $11,182.36, and no rearrangement of April's balance, rate and days equals $357.24. Reverse-engineering the adjustment uses February's record: $357.24 ÷ ($1,837,260.01 × 28 ÷ 360) = 0.002500…, which is 25 basis points, the spread between 6.72 and 6.97.
The March chain you already matched is not broken by this. March was consistent with the terms as then stated. The adjustment is evidence that a settled period was recomputed, which is the backward-effective mechanism from Track 5. Matching a printed total does not make the period final. Lesson 25 returns to what a match proves.
Key terms
- Prior-period adjustment
- A statement line that corrects a period other than the one the statement covers. Not reconstructable from that statement's own inputs.
- Recomputation
- Rebuilding an earlier product under a revised input. The dollar difference is what later appears.
- February undercharge
- In this invention, $9,959.99 − $9,602.75 = $357.24, the 25-basis-point gap on the 28-day February.
Worked example
Twenty-five basis points, arriving in April
February first printed at 6.72 percent. Correct rate 6.97 percent. The difference posts in April.
- February as first printed
- $9,602.75
- February recomputed
- $9,959.99
- Adjustment
- $357.24
- Implied revision
- 25 basis points
- April interest on its own
- $11,182.36
- April close with the adjustment
- $1,870,103.07
$1,837,260.01 × 0.0672 × 28 ÷ 360.
$357.24 ÷ ($1,837,260.01 × 28 ÷ 360).
April's rate, days and opening do not produce $357.24. February's record does. The line is labelled by where it appears, not by where it belongs.
Check yourself
April shows interest of $11,182.36 and a prior-period adjustment of $357.24. Your February record is a flat $1,837,260.01 for 28 days, Act/360. What revision does the adjustment imply?
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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.