Q.3-18Q - Intermediate Accounting (Kieso)

Question

Question: What are reversing entries, and why are they used?

Step-by-Step Solution

Answer

Answer

Reversing entry is termed as an alternative journal entry made at the beginning of a financial period. The purpose of these entries is to ease day-to-day accounting methods, and they relate only to specific adjusting entries, that is, to accrued expenses and revenues.

Step 1: Reversing entry

Reversing entries are prepared by firms before recording journal entries for the transactions of a new period. A reversing entry is the opposite of an adjusting entry. A firm normally prepares to reverse entries soon after listing closing entries or at the commencing of the next period. It reverses the effect of adjusting entries.

Step 2: Purpose of reversing entry

Reversing entries make the listing of resulting transactions related to adjusting entry simple. A reversing entry assists the firm in recording day-to-day resulting transactions without regarding the probable impact of the previous adjusting entry.