Question

How do you determine which adjusting entries are to be reversed?

Answer 1

Reverse entries are optional, Accounting system has the ability to automatically reverse accruals.

The following are the accounts need adjusting entries,

1.Accrued income

2.Accrued expense

3.Unearned revenue

4.Prepaid expense

5.Depreciation

The following are the various circumstances in which reverse entries are needed:

1) Difference in ledger A/C

2) Due to errors

a) Errors of commission:These are the errors which are committed due to wrong posting of transactions, wrong totalling or wrong balancing of the accounts

b) Errors of Omission:

1)error of complete omission

2) error of partial omission

When a transaction is completely omitted from recording in the books of original records , it is said to be error of complete omission.

When the recording of transactions partly omitted from the accounts is caled error of partial omission

c) Errors of principle:If the entries are not recorded as per the Generally Accepted Accounting Principles , errors resulting such violations are known as errors of principle.

d) Compensating errors:when two or more errors are committed in such a way that the net effect of these errors on the debits and credits is nil, such errors are called compensating errors

These are the various circumstances in which reverse entries are needed apart from adjusting entries.