Accounting Practices 501 Chapter 8 Reversing entries Cathy Saenger, Senior Lecturer, Eastern...
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Accounting Practices 501 Chapter 8 Reversing entries Cathy Saenger, Senior Lecturer, Eastern Institute of Technology © Pearson 2011
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Transcript of Accounting Practices 501 Chapter 8 Reversing entries Cathy Saenger, Senior Lecturer, Eastern...
Accounting Practices 501
Chapter 8
Reversing entries
Cathy Saenger, Senior Lecturer, Eastern Institute of Technology © Pearson 2011
Reversing Entries
Ch8H - Reversing entries 2
What do you think happens with the Current Asset and Current Liability accounts created during
balance day adjustments?
Prepaid Expenses
Accrued Expenses
Accrued Income
Income in Advance
?
They have to be reversed to the original income and expense accounts in the new
period
Ch8H - Reversing entries 3
Reversing Entries
Let’s say we have the above opening balances at the start of a new accounting period (1 April)
O/balances
Dr Cr
Prepaid expenses (Rent) 500
Accrued expenses (Wages) 300
Accrued income (Interest) 100
Income in advance (Commission)
600
These are temporary asset and liability accounts created with balance day adjustments
Ch8H - Reversing entries 4
O/balances Reversing
After
Dr Cr Dr Cr
Prepaid expenses (Rent) 500
Accrued expenses (Wages) 300
Accrued income (Interest) 100
Income in advance (Commission)
600
Reversing Entries
At the start of a new financial period, the above accounts have to be reversed back to the original income and expense accounts.
Ch8H - Reversing entries 5
O/balances Reversing
After
Dr Cr Dr Cr
Prepaid expenses (Rent) 500
Accrued expenses (Wages) 300
Accrued income (Interest) 100
Income in advance (Commission)
600
The Prepaid expenses (Rent) account is reversed to the Rent expense account in the new accounting period (starting on 1 April)
500
500Rent
NIL
Ch8H - Reversing entries 6
O/balances Reversing
After
Dr Cr Dr Cr
Prepaid expenses (Rent) 500
Accrued expenses (Wages) 300
Accrued income (Interest) 100
Income in advance (Commission)
600
500
500Rent
NIL
General JournalDate Account
TitlesRef no
Debit
Credit1/4 Rent 500
Prepaid expenses (Rent) 500
Being entry required to reverse prepaid rent
Ch8H - Reversing entries 7
O/balances Reversing
After
Dr Cr Dr Cr
Prepaid expenses (Rent) 500
Accrued expenses (Wages) 300
Accrued income (Interest) 100
Income in advance (Commission)
600
The Accrued expenses (Wages) account is reversed to the Wages account in the new accounting period (starting on 1 April)
500
500Rent
NIL
300
300
NIL
Wages
Ch8H - Reversing entries 8
O/balances Reversing
After
Dr Cr Dr Cr
Prepaid expenses (Rent) 500
Accrued expenses (Wages) 300
Accrued income (Interest) 100
Income in advance (Commission)
600
500
500Rent
NIL
300
300
NIL
Wages
General JournalDate Account
TitlesRef no
Debit
Credit1/4 Accrued expenses (Wages) 300
Wages 300
Being entry required to reverse wages accrued
Ch8H - Reversing entries 9
O/balances Reversing
After
Dr Cr Dr Cr
Prepaid expenses (Rent) 500
Accrued expenses (Wages) 300
Accrued income (Interest) 100
Income in advance (Commission)
600
The Accrued income (Interest) account is reversed to the Interest income account in the new accounting period (starting on 1 April)
500
500Rent
NIL
300
300
NIL
Wages
100
100Interest income
NIL
Ch8H - Reversing entries 10
O/balances Reversing
After
Dr Cr Dr Cr
Prepaid expenses (Rent) 500
Accrued expenses (Wages) 300
Accrued income (Interest) 100
Income in advance (Commission)
600
500
500Rent
NIL
300
300
NIL
Wages
100
100Interest income
NIL
General JournalDate Account
TitlesRef no
Debit
Credit1/4 Interest income 100
Accrued income (Interest) 100
Being entry required to reverse interest accrued
Ch8H - Reversing entries 11
O/balances Reversing
After
Dr Cr Dr Cr
Prepaid expenses (Rent) 500
Accrued expenses (Wages) 300
Accrued income (Interest) 100
Income in advance (Commission)
600
The Income in advance (Commission) account is reversed to the Commission income account in the new accounting period (starting on 1 April)
500
500Rent
NIL
300
300
NIL
Wages
100
100Interest income
NIL
600
600Commission income
NIL
Ch8H - Reversing entries 12
O/balances Reversing
After
Dr Cr Dr Cr
Prepaid expenses (Rent) 500
Accrued expenses (Wages) 300
Accrued income (Interest) 100
Income in advance (Commission)
600
500
500Rent
NIL
300
300
NIL
Wages
100
100Interest income
NIL
600
600Commission income
NIL
General JournalDate Account
TitlesRef no
Debit
Credit1/4 Income in advance (Comm) 600
Commission income 600
Being entry required to reverse commission received in advance
Mmmm… clear as mud!
Ch8H - Reversing entries 13
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