Get into Reverse!

Reversing entries are accounting entries that are made at the beginning of an accounting period to reverse or cancel out certain entries made in the previous period. These are typically used for certain types of accrual entries, such as the accrual of interest or the accrual of salaries and wages. By making a reversing entry, the balance of the account is returned to its original state, and the transactions can be recorded correctly in the current period.

There are several reasons why an organization might make a reversing entry:

1. To correct an error in a previously recorded journal entry

2. To cancel out accruals or deferrals that were recorded in the previous period

3. To simplify the process of preparing financial statements by eliminating the need to make adjusting entries

4. To ensure that the organization's financial statements are consistent and accurate by eliminating the need to carry over balances from one period to the next.

Overall, reversing entries are used to ensure the accuracy and consistency of an organization's financial records.

To make a reversing entry, you would need to create a journal entry that offsets the original journal entry. The reversing entry should be made in the next accounting period and would have the opposite effect of the original entry on the accounts affected.

For example, if the original journal entry was a debit to the accounts receivable account and a credit to the revenue account, the reversing entry would be a credit to the accounts receivable account and a debit to the revenue account. This would effectively "reverse" the impact of the original entry on the accounts.

It's important to note that the purpose of a reversing entry is to cancel out the effect of an original entry that was made in error or that is no longer applicable. Reversing entries should not be used to correct errors in the original entry; instead, a correcting entry should be made to fix the error.

To make a reversing entry in QuickBooks Online, follow these steps:

1. Go to the "+" icon at the top of the page and select "Journal Entry" from the dropdown menu.

2. In the "Date" field, enter the date of the reversing entry. This should be the first day of the next accounting period.

3. In the "Description" field, enter a brief description of the reversing entry.

4. In the "Debit" and "Credit" columns, enter the amounts to be reversed. These should be the opposite of the original entry. For example, if the original entry was a credit of $100, the reversing entry should be a debit of $100.

5. Select the appropriate account for each amount.

6. When you are finished, click "Save and close" to record the reversing entry.

It's important to note that reversing entries are not the same as deleting or voiding transactions. They are used to correct errors or to reverse accruals that were made in the previous accounting period.

In Zoho Books, to create a reversing entry:

1. Go to the Transactions tab and click on the Journal Entries subtab.

2. Click on the New Journal Entry button.

3. In the Date field, enter the date for the reversing entry. This should be the date that you want the reversal to take effect.

4. In the Description field, enter a brief description of the reversal.

5. In the first row of the Debit/Credit column, select the account that was debited in the original journal entry.

6. In the Amount field, enter the amount that was debited in the original journal entry.

7. In the second row of the Debit/Credit column, select the account that was credited in the original journal entry.

8. In the Amount field, enter the amount that was credited in the original journal entry.

9. Click on the Save button to create the reversing entry.

Keep in mind that reversing entries should only be used to correct errors in journal entries that have already been posted. If you need to make a change to a journal entry that has not yet been posted, you should simply edit the original entry rather than creating a reversing entry.