Reversing Entry
BeginnerA reversing entry is an optional journal entry made at the start of a new period that cancels out certain adjusting entries from the end of the previous period, to make recording simpler.
Reversing entries are mainly used for accruals. Suppose staff earned 2,000 of wages in the last few days of December, to be paid on 5 January. At the end of December, an adjusting entry records 2,000 of wage expense and 2,000 of wages payable.
When the full payroll of, say, 6,000 is paid on 5 January, the bookkeeper would normally need to remember that 2,000 of it relates to December and was already recorded. A reversing entry on 1 January simply undoes the December accrual. The bookkeeper can then record the full 6,000 payment as January wage expense, and the reversal ensures that only 4,000 ends up as January's expense.
The result is the same as without the reversing entry, but it reduces the risk of recording the same expense twice and makes routine bookkeeping easier.
Reversing entries are optional and are mainly useful for accrued expenses and accrued revenue. Many accounting systems create them automatically.
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