Journal reversal in GL

Journal Reversing Entry

 

Reversing entries are made on the first day of an accounting period in order to remove certain adjusting entries made in the previous accounting period. Reversing entries are used in order to avoid the double counting of revenues or expenses.

Example of a Reversing Journal Entry

Let’s consider example of payables ,to develop the project ABC Corp Hire XYZ Corp from 1^st July to 30^th July for 10000$, but XYZ Corp will provide invoice in Month of August, but ABC Corp bound to show this expense in July accounting sheet.

So accounting entry in July would be:

Account	Debit	Credit
ABC Expense	10000
Accrued Expense		10000

On 1^st of August system should lunch reversing Journal program (Manually or Automatically) So the resulting Accounting entries would be:

Account	Debit	Credit
Accrued Expense	10000
ABC Expense		10000

The supplier's invoice arrives later in August, and we record it with the following entry, which offsets the negative $10,000 that would otherwise have appeared in the company's income statement in August.

Account	Debit	Credit
ABC Expense	10000
Supplier Account		10000

The result is that the $10,000 expense appears in the company's income statement in July, while there is no net recognition of any expense at all in August. If we won’t consider reversing journal entries it will result into recording expenses in both July and August

Similar is the case of Account receivables, You accrue $10,000 of revenue in January, because the company has earned the revenue by Providing services to XYZ Corp but has not yet billed it to the customer. You expect to invoice the customer in February, so you create a reversing entry in the beginning of February to reverse the original $10,000 revenue accrual. The final billing, for a total of $10,000, is completed later in the month. The net result is the recognition of $10,000 in revenue in January, followed by no recognition of revenue in February.

When you create a journal entry you want to automatically reverse, specify a journal category that has assigned reversal criteria. Your journal will be reversed based on the method, period and date criteria you defined for that journal category.

 

General Ledger generates and posts reversals for journals that satisfy the following conditions:

• The journal balance type is Actual.
• The journal category is enabled to be Auto-reversed.
• The journal is posted but not yet reversed.
• The journal reversal period is open or future enterable.

We can set Profile option GL: Launch Auto-Reverse After Open Period to YES to automatically lunch reverse journal program when you open a new GL period.

All reversal journals with Auto-Reverse and Auto-Post enabled will be generated and posted according to the reversal criteria you defined.