Reversing entry

Reversing entry
See also

Reversing entry "is an entry made at the beginning of the next accounting period" (J. J. Weygandt, D. E. Kieso, P. D. Kimmel, 2010, s. 175). Reversing entry is the accurate opposite of the adjusting entry made in the former period (J. J. Weygandt, D. E. Kieso, P. D. Kimmel, 2010, s. 175).

The purpose of reversing entry[edit]

Before saving journal items for the deal of a new period, some business makes reversing entries, which are the exact reverse (which include amounts and accounts) of a corrective entry (J. M. Wahlen, J.P. Jones, D. Pagach, 2017, s. 3-31).

Usually a business makes reversing entries just after saving the closing entries or on the first day of the following period. A retreat entry is optional, and the target is to simplify the registration of further transactions connected with the adjusting entry. A reversing entry allows a business to routinely record the following transactions, except necessity to consider the eventually influence of the previous adjusting entry (J. M. Wahlen, J.P. Jones, D. Pagach, 2017, s. 3-31).

According to the general guideline, reversal entries should be done for adjusting items that make at the end of accounting period a new balance sheet account for transaction that will be completed in the next accounting period, in the following way (J. M. Wahlen, J.P. Jones, D. Pagach, 2017, s. 3-31).

  • Adjusting items that accrue incomes which should be collect in the following accounting period
  • Adjusting items that accrue expenses which should be paid in the following accounting period
  • Adjusting entries that postpone costs by saving them as prepaid costs, which will be used in the following accounting period
  • Adjusting items that postpone revenues for prepayment from clients by saving them as unrealized or postponed incomes which will be recognized in the following accounting period (J. M. Wahlen, J.P. Jones, D. Pagach, 2017, s. 3-31):

Reversing entries should not be done for any adjusting item that adjust the final balance of an existing balance sheet account for transactions which will not be realized during the following accounting period, in the following way(J. M. Wahlen, J.P. Jones, D. Pagach, 2017, s. 3-31):

  • Adjusting entries that postpone costs by saving them primitively as assets that will not be totally consumed in the following accounting period
  • Adjusting entries that postpone revenues by saving them primitively as liabilities that will not be totally recognized in the following accounting period
  • Adjusting entries related to assessed items such as bad debts or depreciation

(J. M. Wahlen, J.P. Jones, D. Pagach, 2017, s. 3-31)

In some cases, it is preferring to inverse the effects of some adjusting positions by making a reversing item at the beginning of the following accounting period (D. E. Kieso, J. J. Weygandt, T.D. Warfield, 2016, s. 109).

A reversing entry is the accurate opposite of the adjusting position made in the former period. Using reversing items is an optional accounting procedure; it is not a requisite step in the bookkeeping cycle (D. E. Kieso, J. J. Weygandt, T.D. Warfield, 2016, s. 109).

References[edit]

Author: Kinga