Accounting: The Language of Business - Vol. 2 (Intermediate: Part 42)

There is a danger in the word someday when what it means is “not this day.”...The scriptures make the danger of delay clear. It is that we may discover that we have run out of time. The God who gives us each day as a treasure will require an accounting. We will weep, and He will weep, if we have intended to repent and to serve Him in tomorrows which never came or have dreamt of yesterdays where the opportunity to act was past. This day is a precious gift of God. The thought “Someday I will” can be a thief of the opportunities of time and the blessings of eternity.

Henry B. Eyring

Review of the Accounting Cycle (Part S)

by

Charles Lamson

Reversing Entries

Companies make reversing entries as an optional step in the accounting cycle at the beginning of the next accounting period to reverse the effects of the adjusting journal entries made in the previous period. Reversing entries simplify the recording of subsequent transactions related to the adjusting journal entries (see Part 29), and they typically apply to adjusting journal entries for accrued revenues and accrued expenses.

Because reversing entries are made in the accounting period following the period in which the adjusting journal entries were made, their use does not change the amounts reported in the previously issued financial statements.

EXAMPLE 4C.1 Reversing Entries

PROBLEM: EO Eleven, Inc. made the following adjusting journal entry on December 31, 2018, to accrue the first week, which is one-half of its bi-weekly $75,000 payroll:

 The related t-accounts follow:

The closing entry for the 2018 salary expense is presented here:

What reversing entry will EO Eleven make related to this adjusting journal entry? What entry will EO Eleven make at the time of its next payroll on January 10th? Provide t-accounts.

SOLUTION: On January 1, 2019, EO Eleven prepares the following reversing entry:

The t-accounts are as follows:

 

At this point, EO Eleven can make its regular entry to record the January 10, 2019, biweekly payroll for $75,000 in the usual way. That is, the accounting information system does not have to be modified and it can process the regular payroll entry as follows:

 The t-accounts are as follows:

EO Eleven reports the correct expense of $37,500 for 2019. 

        

*GORDON, RAEDY, SANNELLA, 2019, INTERMEDIATE ACCOUNTING, 2ND ED., PP. 168-169*

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