Reversing entries are recorded when there has been a mistake or when an adjusting entry must be reversed to accurately display an accrued expense or revenue. The reversing entries are recorded on the first day of an accounting period. Reversing Entries are part of the Time Period concept in Accounting.
Learning Goals
By the end of this activity you will be able to:
explain why reversing entries are necessary
complete the process of adjusting, closing, reversing and routine entries.
Place in BAT4M Course
Reversing Entries are part of the Accounting Cycle unit
Textbook: pages 231-234
How to Use Reversing Entries
J. Bernier - an employee - is paid $200 per day ($1,000 per week).
Cheques are issued every Friday.
March 31 is a Monday but J. Bernier will not be paid until April 4th.
The accountant must record the following:
An adjusting entry is made March 31 to record $200 in salary expenses for February.
A closing entry occurs on March 31 to close the salary expenses account into the Income Summary for March.
A reversing entry on April 1st records that the salary expense is less than usual ($200 having been recorded for February).
A routine entry on April 4th records that J. Bernier was paid for the week.
When closing entries are completed April 30th, the appropriate amount of Wages Expense will be recorded in April's Income Summary.
Reversing entries are optional; not every company uses them. Some adjusting entries are reversed to display that an account has an abnormal balance. Only accrued expenses and revenues are reversed. Accrued expenses are costs that have been incurred but not paid or recorded, accrued revenues are goods and services delivered but not billed or recorded.
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