What are the pros and cons of reversing entries?


Quick Answer

The pros of reversing entries are to correct mistakes, maintain efficiency, keeping things simple by eliminating the need for research or calculations, and maintaining accuracy. The major con of reversing entries is that the practice requires additional work if using accrual accounting.

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Full Answer

Reversing entries are made on the first day of the accounting period to remove adjusted entries from the previous accounting period. These entries are used to avoid the process of double counting expenses or revenues, allowing the efficient processing of documents. Reversing entries are usually used with the accrual method of accounting. The biggest advantage of reversing entries is that it matches revenues and costs during each period in which the business incurs or earns them.

Another advantage of reversing entries is its ability to keep things simple. An employee who does not have much knowledge about accounting can complete the task. Reversing an entry is as simple as crediting a debit or debiting a credit; the entry is just reversed with no other changes and does not require any special training or the need for difficult calculations.

A disadvantage of reversing entries is that it is a task that must be maintained continuously, especially if the business uses the accrual-accounting method.

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