Print Reference This Reddit This

Reversing Entries

As accruals, deferrals and other adjusting entries do not relate to transactions, there is a risk that when the transaction they refer to occurs, the net financial impact will be double counted in the accounts. In order to avoid this, any adjusting entries need to be tracked into the following period, and accounted for properly during this period. One way this can be achieved is through the use of reversing entries. A reversing entry simply eliminates the balance of one of the accounts used to record an accrual or deferral, with a corresponding debit or credit to the other relevant account.

MBA Writing Service

Our professionally qualified writers are available to produce most types of academic work on the subject of accounting. From assignments and coursework to full dissertations we are bound to have a service to suit your needs:

Our Writing Services

For example, in the case discussed in the adjusting entries section, if the company accrues a £600 credit in the accrued expenses account this would be treated as a liability at year end. At the start of the next year, this could be reversed by debiting the accrued expenses account by £600 and crediting the rent and rates account by £600. This would reverse the liability and account for the electricity expense in the journal account for the current period. However, whilst reversing entries can be a useful tool for ensuring that adjusting entries are treated correctly, they are an optional tool and their use would depend on the judgement of the accountant. Indeed, the accountant is free to treat accruals and deferrals from previous periods any way they like, provided they avoid double counting and the accounts are a true and fair reflection of the material value of the firm.

Related Content

On top of our MBA help guides we also have a range of free resources covering the topic of accounting: