When PWT Company failed to record depreciation expense in 2019 and discovered it in 2020, how should the error be accounted for?

When a company fails to record depreciation expense in a prior period and realizes the oversight in a subsequent period, the appropriate method to account for this error is as a prior period adjustment. This approach is necessary because depreciation is a systematic allocation of cost over the useful life of an asset, and failing to record it affects the accuracy of the financial statements for the period in which the asset was used.

By recognizing the error as a prior period adjustment, PWT Company will correct its retained earnings at the beginning of the current period to reflect the accumulated depreciation that should have been recognized in 2019. This adjustment ensures that the financial statements present a true and fair view of the company's financial position and results in the correction of historical financial data, which is crucial for accurate reporting and compliance with accounting standards.

This method maintains the integrity of financial reporting by ensuring that users of the financial statements are aware of the adjustments made to previous periods, thus providing transparency regarding the company's financial history.