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ACC 280 UOP Class Notes

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Question:
What are reversing entries? Why are reversing entries needed? What
would be the affect if not made? What are the pros and cons of using
reversing entries? What types of transactions may require reversing
entries?
Reversing entries are made after the accounting cycle for a period has
closed, so they are made at the beginning of an accounting cycle. Using
reversing entries are an optional method of reversing the adjusting entries
that were made. If you recall that adjusting entries are necessary because
of artificial accounting periods and the revenue recognition and matching
revenue to expenses. The reversing entries are made to nullify the
adjusting entries. This works well and makes sense with account like
salaries payable and salaries expense because once the adjusting entries
for these contra accounts are reversed the expense for salaries can be
recorded when the real economic event occurs, i.e. payroll is
prepared. The advantages for using reversing entries in this example is
that you don't have to remember that part of the salaries has already been
recorded, so the full amounts of the payroll can be recorded in the new
accounting period. Otherwise you would have to make a compound entry
to accommodate the part of the payroll that was already expensed. Making
the reversing entries simplifies the later transactions to those accounts. In
most cases only accrued expenses are reversed, when the real economic
transaction occurs it can be recorded at it's full amount. It would not be
advantages to reverse depreciation, or the use of pre-paid expenses like
insurance.

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Question: What are reversing entries? Why are reversing entries needed? What would be the affect if not made? What are the pros and cons of using reversing entries? What types of transactions may require reversing entries? Reversing entries are made after the accounting cycle for a period has c ...
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Anonymous
Really useful study material!

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