How to Reverse Entries in Intermediate Accounting
Reversing entries are a way to keep track of expenses or revenues at the end of periods. Adjusting entries first account for any expenses or revenues accrued but not paid for that period. This gives a more accurate representation of expense or revenue for a period. Reversing entries then cancel out the adjusting entry in order to make the bookkeeping when actual expenses are paid or revenues are earned.
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Instructions
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1
Post an adjusting entry to the general ledger. For example, in the middle of the month a firm receives a note with interest payable in one month. At the end of the month, post an adjusting entry to acknowledge half of the interest that would have accrued. Debt "Interest Expense" and credit "Interest Payable."
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2
Post the reversing entry at the beginning of the month. Debit "Interest Payable" and credit "Interest Expense" by the same amount in Step 1. This reverses the entry to make it easier on the accountant to account for the expense when the expense is paid.
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3
Debit "Interest Expense" and credit "Interest Payable" for the amount of interest paid on the date the firm pays interest.
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Tips & Warnings
Intermediate Accounting is an accounting class usually taken as a junior. The topic of reversing entries is typically introduced to the student in an Intermediate Accounting course.
References
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