BOOKKEEPING GLOSSARY · JOURNAL ENTRIES AND ADJUSTMENTS
Reversing Entry
Last Updated: October 5, 2026A reversing entry automatically undoes a prior accrual or deferral at the start of the next period, so the real invoice can be recorded normally without double-counting. It exists to solve one specific and very common error: the accrual that was made and then never taken back out.
The Problem It Solves
At the end of March you accrue $4,000 for subcontractor work completed but not invoiced. In April the invoice arrives and is entered as a normal bill.
You now have the cost twice: once as the March accrual, once as the April bill. Unless someone remembers the accrual, March and April are both wrong and the liability on the balance sheet is overstated for as long as it takes someone to notice.
A reversing entry removes the accrual on the first day of April automatically. The invoice is then entered without special handling, the cost sits in March via the accrual, and nobody has to remember anything.
Why Automatic Beats Disciplined
The alternative to reversing entries is remembering, and remembering does not scale. Accruals are made at a busy point in the month by whoever is closing, and the person entering supplier invoices three weeks later is often someone else.
Both QuickBooks Online and Xero support recurring and reversing journal setups. The setup takes a minute per accrual and removes a whole class of error permanently, which is a better trade than almost anything else in a month-end process.
It also makes the accrual self-documenting. A reversing journal has a defined life, so a stale accrual cannot sit on the balance sheet for two years pretending to be an estimate.
What Goes Wrong
Accruals made without reversals — the error this exists to prevent.
Reversals set up and the invoice also matched against the accrual. Belt and braces becomes double relief. Pick one method per accrual and be consistent.
Reversing a deferral that should not be reversed. Deferred revenue released over twelve months is a schedule, not a reversing entry. Reversing it in month two undoes the whole thing.
Reversing Entry FAQs
When should I use a reversing entry?
For any accrual or short-term deferral where a real invoice will arrive in the next period — accrued subcontractor work, accrued utilities, accrued payroll. It removes the accrual automatically so the arriving invoice can be entered normally without double-counting the cost.
Should deferred revenue be reversed?
No, not as a single reversing entry. Deferred revenue is released over the service period on a schedule, so reversing it at the start of the next month undoes the whole deferral. Reversing entries are for short-term accruals that a real transaction will replace.
Related Terms
Accruals That Take Themselves Back Out
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