Reversing Entries
Reversing Entries
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McQuaig
Bille 121
Reversing
Reversing Entries
Entries
Reversing entries are general journal entries
that are the exact reverse of certain adjusting
entries.
A reversing entry enables the accountant to
record routine transactions in the usual
manner, even though an adjusting entry
affecting one of the accounts involved in the
transaction has intervened.
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Reversing
Reversing Entries
Entries Example
Example
All the employees of Mason Company earn, altogether, $400 per
day for a five-day week and their payday occurs every Friday.
Their current paychecks include wages for that Friday and for the
preceding four days. The last day of the fiscal year falls on
Wednesday, December 31.
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Reversing
Reversing Entries
Entries
Now, lets follow the T accounts to see what happens.
We begin with the adjusting entry at December 31.
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Reversing
Reversing Entries
Entries
Next, we close Wages Expense (but not Wages
Payable).
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Reversing
Reversing Entries
Entries
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Reversing
Reversing Entries
Entries
On the first payday of
the new fiscal period,
the accountant can
debit Wages Expense
and credit Cash for
$2,000 (just as if it was
the middle of the fiscal
year). After the payroll
entry, there will now be
a debit balance of $800
in Wages Expense,
which is the correct
amount.
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Reversing
Reversing Entries
Entries Rules
Rules
If an adjusting entry is to be reversed, it must
meet both of the following qualifications:
1. The adjusting entry increases an asset or
liability account.
2. The asset or liability account did not have a
previous balance.
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