Reverse entries

reverse entry u puting when u .made a entry earlier... aftrr that u have some relisation, reuired ratification,or simply needs to nullify earlier one entry insuch a case u put reverse entry..like u have made provision for bad debt... and at year end u got relised some amount out of earlier provision...in this case u need to reverse the provision by the amount of recovered.

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

 

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/-

Agree with Vardan...