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Chapter 3: Q.3-18Q (page 128)

Question: What are reversing entries, and why are they used?

Short Answer

Expert verified

Answer

Reversing entry is termed as an alternative journal entry made at the beginning of a financial period. The purpose of these entries is to ease day-to-day accounting methods, and they relate only to specific adjusting entries, that is, to accrued expenses and revenues.

Step by step solution

01

Reversing entry

Reversing entries are prepared by firms before recording journal entries for the transactions of a new period. A reversing entry is the opposite of an adjusting entry. A firm normally prepares to reverse entries soon after listing closing entries or at the commencing of the next period. It reverses the effect of adjusting entries.

02

Purpose of reversing entry

Reversing entries make the listing of resulting transactions related to adjusting entry simple. A reversing entry assists the firm in recording day-to-day resulting transactions without regarding the probable impact of the previous adjusting entry.

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Most popular questions from this chapter

BE3-4 (L02,3) Using the data in BE3-3, journalize the entry on July 1 and the adjusting entry on December 31 for Zubin Insurance Co. Zubin uses the accounts Unearned Service Revenue and Service Revenue.

EXCEL (Adjusting Entries) The ledger of Duggan Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared.

Debit Credit

Prepaid Insurance \(3,600

Supplies \)2,800

Equipment \(25,000

Accumulated Depreciation- Equipment \)8,400

Notes Payable \(20,000

Unearned Rent Revenue \)9,300

Rent Revenue \(60,000

Interest Expenses -0-

Salaries and Wages Expenses \)14,000

An analysis of accounts shows the following.

  1. The equipment depreciates \(250 per month.

  2. One-third of the unearned rent was recognized as revenue during the quarter.

  3. Interest of \)500 is accrued on the notes payable.

  4. Supplies on hand total \(850

  5. Insurance expires at the rate of \)300 per month.

Instructions

Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are Depreciation Expenses, Insurance Expenses, Interest Payable, and Supplies expenses. (Omit Explanations)

How is the date of transition and the date of reporting determined in first-time adoption of IFRS?

When converting to IFRS, a company must:

(a) recast previously issued financial statements inaccordance with IFRS.

(b) use GAAP in the reporting period but subsequentlyuse IFRS.

(c) prepare at least three years of comparative statements.

(d) use GAAP in the transition year but IFRS in thereporting year

The following are the trial balance and the other information related to Yorkis Perez, a consulting engineer.

YORKIS PEREZ, CONSULTING ENGINEER .
TRIAL BALANCE
DECEMBER 31, 2017

Debit

Credit

Cash

\( 29,500

Accounts Receivable

49,600

Allowance for Doubtful Accounts

\) 750

Supplies

1,960

Prepaid Insurance

1,100

Equipment

25,000

Accumulated Depreciation—Equipment

6,250

Notes Payable

7,200

Owner’s Capital

35,010

Service Revenue

100,000

Rent Expense

9,750

Salaries and Wages Expense

30,500

Utilities Expenses

1,080

Office Expense

720

\(149,210

\)149,210

  1. Fees received in advance from clients \(6,000, which were recorded as revenue.
  2. Services performed for clients that were not recorded by December 31, \)4,900.
  3. Bad debt expense for the year is \(1,430.
  4. Insurance expired during the year \)480.
  5. Equipment is being depreciated at 10% per year.
  6. Yorkis Perez gave the bank a 90-day, 10% note for \(7,200 on December 1, 2017.
  7. Rent of the building is \)750 per month. The rent for 2017 has been paid, as has that for January 2018, and recorded as Rent Expense.
  8. Office salaries and wages earned but unpaid December 31, 2017, \(2,510.

Instructions

  1. From the trial balance and other information given, prepare annual adjusting entries as of December 31, 2017. (Omit explanations.)
  2. Prepare an income statement for 2017, a statement of owner’s equity, and a classified balance sheet. Yorkis Perez withdrew \)17,000 cash for personal use during the year.
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