What are the pros and cons of reversing entries?

Small companies that use the Cash Basis Accounting system sometimes have outside accountants reconcile their accounts to an Accrual Basis Accounting System. Cash Basis Accounting only recognizes revenues and expenditures when Cash is Received or Spent whereas Accrual Basis Accounting Recognizes Revenues when earned and Expenses when incurred.

A reversing entry is used at the beginning of the accounting period to reverse the entries that were made to change the Cash Basis Accounting System to the Accrual Basis Accounting System at the end of the previous accounting period. The reversing entry changes the Accrual Basis Accounting System back into the Cash Basis Accounting System for the company.