What is a reversing entry?

A reversing entry is a journal entry made at the beginning of a period that exactly reverses an adjusting entry from the prior period, simplifying the recording of subsequent transactions. For professional service firms, reversing entries streamlines accrual accounting by eliminating manual tracking of accrued items.

Key characteristics

• Reverses prior period accrual

• Made at period start

• Simplifies subsequent entries

• Exact opposite of the original

• Optional accounting technique

• Reduces errors

Why it matters for professional service firms

Reversing entries prevents double-counting of accrued items and simplifies recording when actual transactions occur. Without reversals, you must remember what was accrued and adjust accordingly. Professional service firms using accruals should consider reversing entries to simplify bookkeeping.

Real-world example

Kevin accrued $15,000 revenue on December 31 for work performed but not billed. January 1 reversing entry: debit deferred revenue $15,000, credit revenue $15,000. When the January $15,000 invoice was issued, it was recorded to revenue as usual. Reversing entry offset invoice, netting to zero. Revenue was correctly recorded in December without a manual adjustment to the January invoice.