Hi,
I am preparing a good form multiple-step income statement and a statement of retained earnings for 2008.

In reviewing the accounts, I recognized that a revenue item of $400 000 was not recorded in 2006, the year in which it was earned.

I know that there needs to be an adjustment done but I am not sure how ito go about it. Please help. (I think that retained earnings will be affected)?? :confused:

Yes, it'll be a debit to retained earnings. On the statements, it should be added as an adjustment to the beginning balance as a prior period adjustment, so that you essential have a different beginning balance. (It doesn't get into the current income statement that way.)

If you have comparative statements (like if 2006, 2007 and 2008 are all on the same statement), then you want to go back and fix it in 2006 as though you had actually recorded it. You want it there for comparative purposes.