What are reversing entries and why are they required?
http://www.cliffsnotes.com/study_guide/Reversing-Entries.topicArticleId-21081,articleId-21029.html
Thank you that helped in many ways. I have been taking this accounting class for about 3 weeks now and I feel like I am getting no where.
You're welcome.
If you're having trouble understanding your Axia materials, try Googling some of the concepts in the questions.
I have and didn't find anything. I am not real good on the computer much so learning two things at once can get to someone. SMILES I must go on and keep trying though.
:-) Good luck!
This library's website can help you a great deal as you learn how to make search engines work for you:
http://hanlib.sou.edu/searchtools/
Especially this link:
http://hanlib.sou.edu/searchtools/searchtips.html
Reversing entries are journal entries that are made at the beginning of an accounting period to reverse certain adjusting entries that were made at the end of the previous accounting period. These entries are commonly used in accrual accounting to simplify the accounting process and ensure that financial statements accurately reflect the economic activity of the period.
Reversing entries are required for a few main reasons:
1. Simplify the accounting process: Reversing entries simplify the process of recording transactions and adjusting journal entries. By reversing certain accruals or deferrals, it allows accountants to start the new period with a clean slate. It eliminates the need to make complex calculations and reduces the chances of errors or double-counting.
2. Accurate financial statements: Reversing entries help ensure that financial statements accurately reflect the economic activity of the period. By reversing certain adjusting entries, it eliminates the potential for these entries to be overlooked or forgotten in the subsequent period. This way, the financial statements for the new period will show only the actual transactions and not the adjustments made in the previous period.
3. Consistent reporting: Reversing entries promote consistency in financial reporting. By reversing the entries, the accounting records for the new period will match the business activity for that period, without any carryover of adjustments from the prior period. This helps in making accurate financial comparisons between different periods and facilitates decision-making based on reliable and consistent financial information.
To create reversing entries, follow these steps:
1. Identify the adjusting entries made in the previous accounting period. These are typically accruals or deferrals, such as accrued expenses, prepaid revenues, or depreciation.
2. Determine which adjusting entries should be reversed. Not all adjusting entries need to be reversed; typically, those that involve temporary accounts or items that are not expected to have an ongoing impact in the new period are reversed.
3. Create journal entries to reverse the adjusting entries. For example, if an accrued expense was recorded in the previous period, the reversing entry would debit the expense account and credit the corresponding liability account.
4. Ensure that the reversing entries are dated at the beginning of the new accounting period.
5. Post the reversing entries to the general ledger, just like any other journal entry.
By following these steps, you can properly create reversing entries and ensure accurate and consistent accounting throughout different accounting periods.