Reversing Entries

Reversing Entries

Malcolm Stepp

Course: XACC 290

May 12, 2013

Instructor: Anthony Bria

Reversing Entries

A reversing entry according to “Accounting Tools” (2011) website is a “journal entry made at the beginning of an accounting period, which reverses selected entries made in the immediately preceding accounting period”. Typically, reverse entries are made on the first day of the accounting period and are usually used when revenues or expense were accrued in the previous accounting period and the company does not want the expense or revenue left in the accounting system for another period. The below examples demonstrations how companies can benefit from using reverse entries for both revenues and expenses.

For revenues, it is beneficial to use reversing entries when a company earned revenue in the previous accounting period but did not bill for the revenue. If the company plans to bill for that revenue in the next accounting period than the original revenue accrual would be reversed at the beginning of the period. When the billing is complete later that month the company can record the revenue without the worry of recording it twice in two different accounting periods (Accounting Tools, 2011).

For expenses, if a company records an accrued expense in the previous accounting period for assets such as supplies and those supplies did not arrive before the closing of that period, then a revers entry is used in the beginning of the next accounting period. The supplies then arrive and are recorded in that accounting period. This allows the supplies to be recorded without double recording the supplies expenses that were recorded in the previous period (Accounting Tools, 2011).

“Financial statements are unaffected by the choice to use or not use reversing entries” (Preparing Financial Statements, p. 2). The main purpose of revising entries is to simplify a company’s accounting process but these entries are optional. If a company opts not to use reverse...