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Reversing Entries

Reversing Entries

Reversing Entries are done if the following Adjusting entries are done:
(I assume naiintindihan nyo na ang adjusting entries ah)
1. Accrual of Income
2. Accrual of Expense
3. Prepayment, Expense Method
4. Income Deferral , Income Method

Sabi sa libro nina Ma’am Robles at Ma’am Empleo, “The purpose of reversing entries is to simplify the recording of routine transactions. Preparing reversing entries eliminates the need to monitor the effects of certain adjusting entries made at the end of the period. A reversing entry, as the name impl8ies, is the exact reverse of an adjusting entry”. So papanong mangyayari ang mga nasabi? Ganito:
(lalagyan ko ng amount para makita nyo ah)

Accrued income
Anong adjusting entry?
(dr) Accrued Income 10
(cr) Income 10

Bakit ka ba nag-entry nyan? Kasi may kita ka na na-earn mo na pero hindi mo pa nakokolekta. So, if at the first day of the following year, gagawa ka ng reversing entry, eto ang magiging entry mo:

NEXT YEAR
(dr) income 10
(cr) Accrued Income 10

Anong epekto sa accounts? Since nagdebit ka ng income, bababa ang income mo ng $10 at since crinedit mo yung Accrued income account(balance sheet account), masasara na ang account na ito at zero balance na. Bakit mo ginawa yun? DAHIL, pag nakolekta mo na ang kita mo nitong taon na to, ganito ang gagawin ng bookkeeper na entry:

(dr) Cash 10
(cr) income 10

So, anong effect? Tataas ang cash mo for the year ng $10 at tataas ang income mo by $10. Remember, may debit ka ng $10 kanina? So, maooffset yung income entry mo. Diba? So, in effect, wala ka talagang nirecognize na income this year, kasi nga last year mo pa sya nirecognize.

Accrued Expense

Same logic lang, gagawin lang nating expense.
Anong adjusting entry?
(dr) Expense $5
(cr) Accrued Liability $5

Bakit ka ba nag-entry nyan? Kasi may expense ka na na-incur mo na pero hindi mo pa nababayaran. So, if at the first day of the following year, gagawa ka ng reversing entry, eto ang magiging entry mo:

Next Year
(dr) Accrued Liability $5
(cr) Expense $5

Epekto sa accounts? Sa first day, bababa bale yung expense mo ng $5 at macclose ang Accrued liability account. Pagmagbabayad ka na, ang gagawin ng bookkeeper na entry ay ganito:

(dr) expense $5
(cr) Cash $5

So, net effect at the end of the year sa expense, zero, kasi na-offset. Wala ka baleng nirecognize na expense talaga this year kasi last year pa natin yun nirecognize.

Prepayment, expense method

same logic lang din.

Adjusting entry:
(dr) Prepaid Expense 10
(cr) Expense 10

Bakit tayo nag-adjusting entry ng ganyan? Kasi since expense method tayo, inexpense na natin nung simula yung lahat ng binayad natin pero hindi pa dapat kasi hindi pa lahat yun incurred so binawasan natin yung expense natin na hindi pa dapat expense at nilagay natin sa Prepaid Expense account.So, if at the first day of the following year, gagawa ka ng reversing entry, eto ang magiging entry mo:

NEXT YEAR:
(dr) Expense 10
(cr) Prepaid Expense 10

Anong epekto sa accounts? Tataas bale yung expense ng 10 at macclose mo yung Prepaid expense account na nasa balance sheet. So bakit natin ginawa yun? Kasi para irecognize this year yung natitira pang prepaid expense this year (assuming na irerecognize nga lahat this year pero kung hindi pa lahat irerecognize this year, edi gawa ka ulit ng adjusting entries at the end of this year) . So, kahit hindi mo na sya imonitor, napa-“simplify” nya yung buhay mo kasi hindi mo na kelangan pang imonitor yung account at mababawasan ang chance na hindi sya mainclude sa entries dahil nakalimutan mo.

Income deferral, Income method

Same logic, ginawa lang income

Adjusting entry:
(dr) Income
(cr) Unearned/Deferred Income

Bakit ganoon ang adjusting entry natin? Kasi, since income method ginawa natin, nirecognize natin as income lahat ng perang natanggap natin na hindi naman dapat kasi hindi pa talaga income lahat yun kaya nilipat natin from income to unearned income lahat ng income na hindi pa earned. So, kung gagawa ka ng reversing entry next year, eto ang entry:

NEXT YEAR
(dr) Unearned income
(cr) Income

So, clinose mo yung unearned income account (which Is a balance sheet account) at nag-increase yung income mo. Bakit? In essence kasi, nirecognize mo na this year yung dinefer mo na income. So, hindi mo na kailangan pang mag-adjusting entry sa end of the year. BUT if not all of the income should be recognized this year, you should prepare another adjusting entry.

TANDAAN: sa theories nyo to,
• ang REVERSING ENTRIES ay OPTIONAL.

• Hindi nilalagyan ng reversing entries ang ASSET at LIABILITY method ng Prepayments at deferral ng income, respectively dahil nagmemaintain ka dun ng balance sheet account unlike sa INCOME/EXPENSE account, hindi ka talaga nagmamaintain ng balance sheet account kasi kung papansinin nyo, kinoclose lang natin sya at sa reversing entries. Bakit? Kasi nakadepende yan kung papano ang initial entry mo, whether nagtatag ka ba agad ng Real Account (asset/liab method) or ipinasok mo lang lahat sa Nominal Account (income/expense method).

• kahit anong method gamitin nyo sa prepayment/deferral of income, pareho parin ang balances ng accounts nyo.

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Categories: Reversing Entries
  1. maret
    February 17, 2010 at 7:52 am

    So, anong effect? Tataas ang cash mo for the year ng $10 at tataas ang income mo by $10. Remember, may debit ka ng $10 kanina? So, maooffset yung income entry mo. Diba? So, in effect, wala ka talagang nirecognize na income this year, kasi nga last year mo pa sya nirecognize.

    hindi ko maintindihan… nirecognize mo nga lst year kaso naofset sya so zero na.. cancelled na yung temporary accounts.. so in effect nadagdag yung cash nung 2010 instead of 2009. Ibig sabihin nirecognize lang cya nung 2010 right?

    • February 17, 2010 at 6:22 pm

      Ganito nangyari.

      1. Nag-accrue ng $10 income last year.

      Since itong income na ito ay na-earn last year, marapat lamang na irecognize sya sa year na na-earn sya. Debit Accrued Income (receivable) kasi di mo pa nakokolekta. Credit Income kasi kelangang irecognize ang income on the year earned.

      2. Nagreverse ng entry on the first day of the following year.

      Debit Income, Credit Receivable. Tandaan natin na ang P/L components last year ay closed na. Ang magiging effect ng debit sa income this year ay sa P/L this year. Hindi sya na-offset sa recognized income last year kasi nga sarado na ang income last year. Ang inoffset mo lang ay yung Receivable. So, edi parang nagnegative na ang income? Tignan nyo yung susunod na entry.

      3. Collection.
      Debit Cash. Credit Income. Nagdebit ka ng Cash kasi nakareceive ka ng cash. Kaso, kri-nedit mo yung income. Bakit? Paliwanag ko mamaya. Explain ko muna effect. So, since credit income for $10. Maze-zero out na yung income mo this year for this particular transaction. So, kung iisipin mo, for this particular transaction, nagrecognize ka ng $10 income last year at $0 income this year. Makes sense?

      Ngayon eto ang explanation ng credit income. In real life, pag ang AR specialist naka-receive ng collection, debit lang nang debit yan sa Cash at credit lang nang credit yan sa income/sales. Bakit? Kasi sa real world, sooooooooooobrang daming transaksyon para alamin mo pa kung ano yung mga na-aaccrue mo na at hindi pa for each transaction. Imagine kung kelangan pa nilang alamin kung magkano yung credit Income at credit sa Receivable (na inaccrue mo last year) sa bawat transaksyon, baka 2 years na eh di pa sarado ang books mo. Yan ang silbi ng Reversing Entry. Pinapadali nito ang buhay and at the same time, tinatama nito ang balanse ng accounts lalo na sa mga high-volume transactions. Optional lang naman ang reversing entries pero ginagamit ito para mas maging accurate at mas madali ang entries.

      Kung hindi ka nag-reversing entry, eto ang entry mo sa collection:
      (dr) Cash $10
      (cr) Receivable $10

      oki po? 🙂

  2. maret
    February 18, 2010 at 12:30 am

    naintindihan ko na po yung income. bale po narecognize yung income last year at yung cash this year. nireverse and income para maofset cya pag nareceive na ang cash.
    nalito lang po ako sa accrued income. So since my adjustment last year meron kang account na ACCRUED INCOME. e pano macacancel yung accrued income account kung ang sabi mo ay sarado na at the end of the accounting period yung account na yun. at anu yung mangyayari dun sa accrued income account this year?

    • February 18, 2010 at 5:57 pm

      Diba nung nagreverse ako nagcredit ako ng Receivable. Accrued income din yun, same lang yun. Accrued Income account is an asset account that is a receivable. Kaya, nung nagreverse ka, zeroed out na yung accrued income. 🙂

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