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Reversing Entries
Posted by lperezusa on 07/06/2008 - 00:00
Hello i live in florida and i am studying accounting currently in FAU. while doing my homework i try to learn mostly the things i know that i will actually be dealing with in a real life situation. in my book it says that reversing entries are optional for companies so i was wondering if anyone can tell me how much reversing entries are really used out there? i appreciate any comments.
Luis Perez
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Reversing entries
Hi,
In my experience, reversing entries are used in the real world quite often. A reversing entry may be used to accrue a cost when the actual amount is not known by deadline for closing the books. In the real world we may need to estimate the cost of June's legal fees, telephone bill, printing costs, etc... For whatever reason, the actual amount is not known and we therefore must estimate the costs, post an entry in the current month (June) with the intent of reversing this entry the following month(July). In July, (the following month) invoices & statements arrive and the actual amount of these estimated costs are now known. The actual amount of the estimated June expenses is booked in July and we reverse the June estimate in July. Ideally, the estimates are close to actuals, so the net impact in July of the reversal entry offset against the actuals entry will be immaterial.
thanks, your answer really helped
thank you for your reply