Basically, the account originally debited is now credited and vice versa. There’s no need to research or conduct any calculations — all you need to do is reverse the original entry using the same exact numbers with no changes.

Each individual’s unique needs should be considered when deciding on chosen products. Otherwise, you could forget to record the entry, which could cause errors in your ledger.

What are Reversing Entries?

The next payday occurred on January 15, 20X4, when $5,000 was paid to employees. The entry on that date required a debit to Salaries Payable (for the $2,000 accrued at the end of 20X3) and Salaries Expense (for $3,000 earned by employees during 20X4).

In this step, the adjusting entries that were made at the end of the previous accounting period are simply reversed, hence the term “reversing entries”. Reversing entries, also known as reversing journal entries, are journal entries made at the beginning of an accounting period that reverse or cancel adjusting entries that were made in the previous accounting period. To avoid the need for a compound entry, Mr. Green may choose to reverse the April 30 adjustment for accrued wages when the May accounting period begins. The reversing entry decreases wages payable for $80 and decreases wages expense for $80. Suppose Mr. Green makes an adjusting entry at the end of April to account for $80 in unpaid wages.

Accounting with the reversing entry:

This adjustment involves an $80 debit to the wages expense account and an $80 credit to the wages payable account. The next example revisits the same facts using reversing entries. The adjusting entry in 20X3 to record $2,000 of accrued salaries is the same. However, the first journal entry of 20X4 simply reverses the adjusting entry.

Certain reversing entries can be set up in advance, making it an organized, efficient process. This is especially speedy when done with a computerized accounting system. Certain programs allow you to mark different journal entries as reversible, and the system creates the reversed entry automatically the following period.

Definition and Examples of Reversing Entries

Suppose you order some supplies at the end of April, thus accruing an expense of $500. Show bioMark has a doctorate from Drew University and teaches accounting classes. He is a writer, editor and has experience in public and private accounting. Mark has a doctorate from Drew University https://www.wave-accounting.net/ and teaches accounting classes. The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice.

Reversing entries can make it easier to record future transactions. For example if Company X wanted to make an adjustment for $600 in unpaid wages, it would debit that amount from the wages expense account and credit it to the wages payable account. Reversing entries are journal entries are used to cancel or neutralize entries made in the previous accounting period. They are typically made at the start of a new accounting period as a way to mitigate accounting errors or to balance the ledger. The interest payable account carried a credit balance of $50 over to the new period, and this balance became zero when the October 1 reversing entry was posted. Because the interest expense ledger account was closed at the end of the reporting period on September 30 , its balance was reset to zero at that time.