[Jian]

Does year end adjusting entries need reversing entries afterwards?:confused:

[morgaine300]

Define "need." Reversing entries have a purpose, but don't necessarily have to be done. If for instance, you put some accrued interest into an interest payable account, and then pay it when January comes, if you know that portion is in the payable, you can just remove it from the payable when it's paid. (Though someone has to be keeping track of what is where -- the smaller the company and the less work there is, the easier this is to do.)

But when they become more complicated, like accruing the last of the payroll at year-end, which can involve estimations, several salary expenses and different payroll taxes, NOT doing a reversing entry can be confusing and add a complication. It increases the chances of screwing up and takes extra unnecessary time. So in that case, doing the reversing entry is just smart. (Probably most accounting software has the option to reverse any entry. In Peachtree there was a little box with a check box that said "reverse" and if I checked that, it would automatically reverse on the 1st of the next month.)

Also, in a case where an accountant is doing the adjusting entries, but some other person (bookkeeper or the manager) is doing some of the work who has more limited knowledge on how accruals work, just reversing them can be a good idea. And then there are even occasions when reversing seems like a bad idea.

As a general rule, only accruals are reversed.

I don't like the word "need." It depends on the situation, who's doing the work, what the entry is, etc. When I was working for small companies, I reversed some and not others, but kept track of what I was doing.

From a certain standpoint, reversing entries take as much understanding as adjusting entries do. And the question can't be directly answered, partly because even if someone wants to reverse everything, deferrals generally aren't (and shouldn't be) reversed.