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 Accounting Practices 501

 Chapter 8

Reversing entries

Cathy Saenger, Senior Lecturer,Eastern Institute of Technoogy ! Pearson "011

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Reversing Entries

Ch8H - Reversing entries 2

What do you think happens with the Current Asset

and Current Liability accounts created duringbalance day adjustments?

PrepaidEpenses

AccruedEpenses

Accrued!ncome

!ncome inAdvance

?

 "hey have to be reversed to the originalincome and epense accounts in the new

period

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Ch8H - Reversing entries 3

Reversing Entries

Let#s say we have the above opening balances atthe start o$ a new accounting period %& April'

()balances

*r CrPrepaid epenses %Rent' +,,

Accrued epenses %Wages' -,,

Accrued income %!nterest' &,,

!ncome in advance%Commission'

.,,

 "hese are temporary asset and liability accountscreated with balance day adjustments

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Ch8H - Reversing entries 4

()balances Reversi

ng

A$ter

*r Cr *r Cr

Prepaid epenses %Rent' +,,

Accrued epenses %Wages' -,,

Accrued income %!nterest' &,,

!ncome in advance%Commission'

.,,

Reversing Entries

At the start o$ a new /nancial period0 the above

accounts have to be reversed back to the originalincome and epense accounts1

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Ch8H - Reversing entries 5

()balances Reversing

A$ter

*r Cr *r Cr

Prepaid epenses %Rent' +,,

Accrued epenses %Wages' -,,

Accrued income %!nterest' &,,

!ncome in advance%Commission'

.,,

 "he Prepaid epenses %Rent' account is reversed tothe Rent epense account in the new accountingperiod %starting on & April'

500

500Rent

NIL

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Ch8H - Reversing entries 6

()balances Reversing

A$ter

*r Cr *r Cr

Prepaid epenses %Rent' +,,

Accrued epenses %Wages' -,,

Accrued income %!nterest' &,,

!ncome in advance%Commission'

.,,

500

500Rent

NIL

General Journalate !""ount

#itlesRe$no

e%it

Cre&it

&)2 Rent +,,

Prepaid epenses %Rent' +,,Being entry required to reverse prepaid rent 

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Ch8H - Reversing entries '

()balances Reversing

A$ter

*r Cr *r Cr

Prepaid epenses %Rent' +,,

Accrued epenses %Wages' -,,

Accrued income %!nterest' &,,

!ncome in advance%Commission'

.,,

 "he Accrued epenses %Wages' account is reversed tothe Wages account in the new accounting period%starting on & April'

500

500Rent

NIL

300

300

NIL

(ages

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Ch8H - Reversing entries 8

()balances Reversing

A$ter

*r Cr *r Cr

Prepaid epenses %Rent' +,,

Accrued epenses %Wages' -,,

Accrued income %!nterest' &,,

!ncome in advance%Commission'

.,,

500

500Rent

NIL

300

300

NIL

(ages

General Journalate !""ount

#itlesRe$no

e%it

Cre&it

&)2Accrued epenses %Wages' -,,

Wages -,,

Being entry required to reversewages accrued

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Ch8H - Reversing entries )

()balances Reversing

A$ter

*r Cr *r Cr

Prepaid epenses %Rent' +,,

Accrued epenses %Wages' -,,

Accrued income %!nterest' &,,

!ncome in advance%Commission'

.,,

 "he Accrued income %!nterest' account is reversed tothe !nterest income account in the new accountingperiod %starting on & April'

500

500Rent

NIL

300

300

NIL

(ages

*00

*00Interestin"o+e

NIL

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Ch8H - Reversing entries *0

()balances Reversing

A$ter

*r Cr *r Cr

Prepaid epenses %Rent' +,,

Accrued epenses %Wages' -,,

Accrued income %!nterest' &,,

!ncome in advance%Commission'

.,,

500

500Rent

NIL

300

300

NIL

(ages

*00

*00Interestin"o+e

NIL

General Journalate !""ount

#itles

Re$

no

e%i

t

Cre&it

&)2 !nterest income &,,

Accrued income %!nterest' &,,

Being entry required to reverseinterest accrued

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Ch8H - Reversing entries **

()balances Reversing

A$ter

*r Cr *r Cr

Prepaid epenses %Rent' +,,

Accrued epenses %Wages' -,,

Accrued income %!nterest' &,,

!ncome in advance%Commission'

.,,

 "he !ncome in advance %Commission' account isreversed to the Commission income account in thenew accounting period %starting on & April'

500

500Rent

NIL

300

300

NIL

(ages

*00

*00Interestin"o+e

NIL

600

600Co++ission in"o+e

NIL

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Ch8H - Reversing entries *2

()balances Reversing

A$ter

*r Cr *r Cr

Prepaid epenses %Rent' +,,

Accrued epenses %Wages' -,,

Accrued income %!nterest' &,,

!ncome in advance%Commission'

.,,

500

500Rent

NIL

300

300

NIL

(ages

*00

*00Interestin"o+e

NIL

600

600Co++ission in"o+e

NIL

General

 Journalate !""ount#itles

Re$no

e%it

Cre&it&)2 !ncome in advance %Comm' .,,

Commission income .,,

Being entry required to reversecommission received in advance

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3mmm4 clear as mud5

Ch8H - Reversing entries *3