INTERMEDIATE
ACCOUNTING
Seventh Canadian Edition
KIESO, WEYGANDT, WARFIELD, IRVINE, SILVESTER, YOUNG, WIECEK
Prepared by:
Gabriela H. Schneider, CMA; Northern Alberta Institute of Technology
CHAPTER
3
Appendix 3A
Using Reversing Entries
Learning Objectives
1. Identify adjusting entries that may be
reversed.
Reversing Entries
• Used to reverse two types of adjusting
entries:
– Accrued Revenues
– Accrued Expenses
• Reversing entries are recorded and
posted on the first day of the new fiscal
period
• Reversing entries are an option
Reversing Entry Guidelines
If reversing entries are used:
1. All accrued items should be reversed
2. All prepaid items where cash was
debited or credited on the original
transaction should be reversed
3. Amortization and bad debt
adjustments are not reversed
Reversing Entries – Accrual
Example
Given the following original, adjusting and closing entries
Oct. 24
Oct. 31
Oct. 31
Salaries Expense
Cash
Salaries Expense
Salaries Payable
Income Summary
Salaries Expense
4,000
1,200
5,200
4,000
1,200
5,200
On November 8th salaries of $2,500 are paid. $1,200 of
this amount relates to the salary accrual of October 31st
Reversing Entries - Accrual
Example
If no reversing entry were made on November 1st
Nov. 8
Salaries Payable
Salaries Expense
Cash
1,200
1,300
2,500
Salary Expense for November is $1,300; and
Salaries Payable now has a zero balance
Reversing Entries - Accrual
Example
If reversing entry is made on November 1st
Nov. 1
Salaries Payable
Expense
1,200
Nov. 8
Salaries Expense
Cash
2,500
1,200
2,500
Salary Expense for November is $1,300; and
Salaries Payable now has a zero balance
Reversing Entries –
Prepayment Example
Given the following original, adjusting and closing entries
Dec. 10
Office Supplies
Cash
20,000
20,000
Dec. 31
Office Supplies Expense
Office Supplies
15,000
15,000
Dec. 31
Income Summary
15,000
Office Supplies Expense
15,000
No reversing entry necessary here. Office Supplies
(Inventory) was debited in the original transaction.
Reversing Entries –
Prepayment Example
Given the following original, adjusting and closing entries
Dec. 10
Office Supplies Expense
Cash
20,000
20,000
Dec. 31
Office Supplies
5,000
Office Supplies Expense
5,000
Dec. 31
Income Summary
15,000
Office Supplies Expense
15,000
If reversing entries are used, a reversing entry is made
in order for the expense account balance to equal the
unused supply cost.
Reversing Entries - Accrual
Example
Reversing entry on January 1st:
Jan. 1
Office Supplies Expense 5,000
Office Supplies
5,000
Here, any additional office supply purchases are
debited to the Office Supplies Expense account.
Office Supplies inventory would then be adjusted
During the year-end adjusting process.
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