Reversing entries are journaled entries that are usually generated to modify the adjusting entries at the beginning of the new bookkeeping phase. The records are used to explain the costs on deferred basis or expenses on an accrual. It is critical to discuss the importance of reversing entries, why are they performed and what they do, lastly we shall explain if all companies following the GAAP requires the reversing entries.
The importance of reversing entries is to ensure that there is no imbalance in the ledger. In case one fails to reverse the accrual entry, the expenses shall be recognized two times when the invoice paid is posted to the journal as cost. Hence reversing entries are responsible for offsetting the charges on the month that it is spent. Therefore, it maintains the accuracy of the expense recognition. The most important factor to note is the fact that, reversing entries are usually made at the beginning of the bookkeeping period to eliminate some adjusting entries which are made in the preceding period of accounting.
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The most considerable importance of reversing entries is because; the bookkeeping cycle is a very complicated procedure which necessitates accuracy, meticulousness, and furthermore the capability to follow specific accounting standard techniques. Thus, it is essential to recognize the benefit and purpose of reversing records to determine if they may be useful in the bookkeeping process. Two key benefits of modifying entries are such that: it makes the processing of subsequent documents more efficient, and also it reduces the chances of double counting of both expenses and revenues significantly.
Lastly, reversing entries are required by all companies, following the Accepted Accounting Principles (GAAP). This is because the accrual base of book-keeping and GAAP need that expenses and revenues are to be matched in the period within which they occur.
