What Are Reversing Journal Entries

These Entries are passed to set off the accounts previously Debited or Credited and recorded at the start of the new accounting. This is an optional Step of Accounting Cycle.

For Example, Wages Outstanding adjusting Entry is as follows:

                                         Wages Expense a/c      XXX

                                                                    Wages Payable a/c     XXX

 (Wages Accrued / Outstanding For The Period)

At the start of next accounting the reverse entry is passed to set off Wages Payable Adjusting Entry and Wages Expense Account as shown below:

                                        Wages Payable a/c      XXX

                                                                   Wages Expense a/c    XXX

When, the company actually paid wages to workers for Cash or by Cheque.

The entry to pay wages to workers is as follows:

                                       Wages Expense a/c       XXX

                                                                    Cash / Bank a/c     XXX

(Paid Wages For Cash or By Cheque / Check)

So, Reversing Entries are made to cancel or set off the affect of Adjusting Entries recorded in Current Period and Previous Accounting Period.