What are Reverse Entries ?
how we can use ?
give me a few examples ?
CA Saroj Kumar
(Keen to learn something new every moments)
(2588 Points)
Replied 03 April 2014
CA Mishty Agarwal
(PRACTICE)
(40 Points)
Replied 03 April 2014
Reversing entries are passed at the beginning of an accounting period as an optional step of accounting cycle to cancel the effect of previous period adjusting entries involving future payments or receipts of cash. The benefit of reversing those adjusting entries is that this eliminates the need to identify what part, if any, of a particular payment or receipt made or received in the period relates to the previous period expense or revenue.
For Instance:Two of the adjusting entries recorded by a company on year ending Dec 31, 2013 are shown below:
| Date | Account | Debit | Credit |
| Dec 31 | Interest Expense | $1,500 | |
| Interest Payable | $1,500 | ||
| Dec 31 | Rent Receivable | $29,000 | |
| Rent Revenue | $29,000 |
Now this method involves two steps, first, the last period adjusting entries which involve future payments or receipts are reversed as shown below:
| Date | Account | Debit | Credit |
| Jan 1 | Interest Payable | $1,500 | |
| Interest Expense | $1,500 | ||
| Jan 1 | Rent Revenue | $29,000 | |
| Rent Receivable | $29,000 |
At the time of actual payment or receipt, a simple journal entry is used to record them without any regard to the part of the payment or receipt which may related to last period. Thus,
| Date | Account | Debit | Credit |
| Feb 1 | Interest Expense | $2,250 | |
| Cash | $2,250 | ||
| Feb 1 | Cash | $58,000 | |
| Rent Revenue | $58,000 |
With Regards,
CA Mishty
Vardan Singh Sengar
(Accounts Manager in Private Company)
(433 Points)
Replied 03 April 2014
E.g of Reverse Entry
1) An insurance co. agreed to pay 10% cash back after paying an insurance amount of say 50000/-.
insurance exp a/c dr - 50000/-
to cash/bank - 50000/-
cash/bank a/c - dr - 5000
to insurance exp a/c - 5000
Now ur insurance exp is 45000/-
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