CheckPoint: Reversing Entries Reversing entries are journal entries used at the beginning of accounting periods. These entries reverse selected entries made in the immediately preceding accounting period. Reversing entries are typically used when revenue or expenses were accrued in the previous accounting period and the company does not want the accruals to remain in the current accounting period. In my office, we accrue payroll, payroll taxes, and various invoices received in one year and paid in the next year. Prior to the annual audit, the accrued entries are reversed to give an accurate picture of ‘in the year, for the year’ transactions. In this way, we are able to accurately report revenues and expenses. These reversals are always posted prior to preparing the year-end trial balance. Reversing entries are optional because only those adjustments that create an account receivable or short term liability should be reversed. Reversing entries are exactly the reverse of an adjusting entry, but the date is the first day of the next accounting period and the transaction contains the same information as the adjusting entry. These adjustments are followed by receipts or expenditures in the near future. In my office, these receipts or expenditures are usually within the first month of the next accounting period. It is important to note that adjusting entries recording depreciation or revenue collected in advance are never reversed.

Reference:
Kimmel, P., D., Weygandt, J. J., & Kieso, D. E. (2011). Financial accounting: Tools for business decision making (6th ed.). Hoboken, NJ: John Wiley &