What is a reversing journal entry?

Definition

A reversing journal entry is a posting dated the first day of a new period that swaps the debit and credit of a prior adjusting journal entry. The original sides flip so the accrual or deferral comes off the books before the related cash or bill is recorded.

This is a flip, not a deletion. The earlier posting stays in the old period, and the reverse is a new posting that clears the balance-sheet side and offsets the same income or expense account.

Where it shows up

Balance sheet: Related to clearing the accrual the prior adjusting entry created.

P&L: Related to the expense or revenue being flipped so the later cash posting lands clean.

Cash flow: Related to nothing extra.

See also: Accrual · Adjusting Journal Entry · Month-End Close

You will not find a reversing journal entry as its own caption on the Balance Sheet. It is a dated posting that takes an accrued amount in current liabilities, or an accrued receivable, back to zero at the start of the new period.

On the Income Statement, the reverse often credits the same expense the old adjustment debited, or debits the same revenue the old adjustment credited. When the later paycheck, vendor bill, or invoice is recorded, the ordinary P&L side lands in the new period and nets against the reverse.

The Statement of Cash Flows does not move because of the reverse itself. Cash has not changed, and the later payment or collection is what appears as an operating cash movement.

How it works

Period-end adjustments put wages, interest, and similar amounts into the period that earned or incurred them, even though cash has not moved. Those postings leave a balance-sheet accrual and a P&L amount in the old period.

How a reversing journal entry clears last period's accrual:

• Keep the original adjusting entry in the old period as issued
• On day one of the new period, post the opposite debit and credit
• Clear the accrued liability or accrued asset created by the adjustment
• Offset the same P&L account so the later cash or bill posting can land the usual way
• Leave last period's statements unchanged; the reverse is dated forward

When payroll is later paid, or when a bill arrives, the ordinary posting can hit cash and the P&L account in the usual way. Because the reverse already offset last period's piece, the new-period P&L shows only what belongs now, without splitting the later cash posting by hand.

The reverse is dated the first day of the new period, not the last day of the old one. Dating it forward leaves the old period's statements as they were issued, so the old accrual still did its cutoff job.

Many ledgers can auto-reverse an adjusting entry if you mark it when you post. The mechanic is the same whether you key the reverse or let the system post it.

Example

A florist closes March with two days of wages still unpaid, and March already recorded $200 of wage expense and $200 of accrued wages. On April 1 the florist posts this reverse:

Debit: Accrued wages $200

Credit: Wage expense $200

Accrued wages return to zero on the Balance Sheet, and wage expense on the April P&L now carries a $200 credit. When April payroll is later paid, the full paycheck debit hits wage expense in April, and that credit absorbs March's $200 so it is not expensed twice.

Common mix-ups

A reversing journal entry is not a void and it is not a deletion. The original adjusting posting remains in the old period, and the reverse is a separate posting in the new period with the sides swapped.

A reversing journal entry is not a closing entry. Closing entries zero income and expense into equity after the statements are ready, and a reverse only undoes one prior adjustment so the next routine posting can land clean.

A reverse is not a correction of a wrong amount. If the original accrual was wrong, you fix that period with a correcting posting, and you reverse only when the original adjustment was intentional and you want it off the books before the related cash or bill hits.

Related terms

• Accrual: Recording an expense or revenue when it happens rather than when cash moves.
• Adjusting Journal Entry: An entry made at period end to record accruals, deferrals, and corrections.
• Journal Entry: A dated record of debits and credits posted to the ledger.
• Accrual Cutoff: The period-end sweep to capture unbilled expenses in the period they belong to.
• Month-End Close: The monthly version of the close, ending in issued financial statements.
• Posting: Recording a journal entry into the general ledger accounts.
• General Ledger: The master record of every account and every posted transaction.
• Accrued Liabilities: Expenses incurred but not yet billed or paid at period end.