How to Reverse Journal Entries in QuickBooks Online and Desktop

Reversing journal entries are an optional but effective procedure for bookkeepers using QuickBooks Online and Desktop to simplify financial record-keeping by preventing the double-counting of accrued revenues and expenses. These entries are created on the first day of a new accounting period to immediately cancel out accrual adjustments made at the end of the prior period, such as accrued wages. The reversal allows the subsequent actual cash transaction (like the payroll expense) to be recorded normally, reducing the likelihood of manual calculation errors.

The process requires specific steps, including locating the original journal entry in the Chart of Accounts and using the platform’s reverse or manual flip-flop functions. Proper application of reversing entries, along with best practices like data backups and audit trail reviews, ensures accurate financial reporting and aligns income and expenses with the correct accounting period.

Highlights (Key Facts & Solutions)

• Primary Purpose: Reversing entries are used to cancel accrual adjusting entries from the preceding period, simplifying bookkeeping and minimizing the risk of double-counting revenues or expenses in the current period.
• Key Timing: Reversing entries are typically made on the first day of the subsequent accounting period and must be the exact opposite of the original accrual entry (debits become credits, and credits become debits).
• QuickBooks Online Steps: The process involves locating the original entry via the Chart of Accounts and selecting the dedicated Reverse button, which automatically creates a new entry dated for the next month and marked with an R (e.g., 123R).
• QuickBooks Desktop Differentiation: Users of Desktop Pro must manually enter the reversed transaction, while Premier/Enterprise users have an automated Reverse button feature.
• Critical Best Practice: Always complete account reconciliations and review the QuickBooks Audit Trail to ensure all necessary accruals were correctly reversed, helping to detect unreversed entries and maintain accurate reports.
• Troubleshooting Focus: Common issues addressed include incorrect setup, missing entries, and timing mismatches, with solutions centered on careful review of dates and comparison between the original and reversal entries.
• Caution: The content advises users to only create or delete journal entries as a last resort or with professional accountant assistance, as incorrect adjustments can quickly unbalance accounts.

Understanding Journal Entries in QuickBooks

Reversing entries are the reversals of accrued journal entries in order to back out the accrual and make space for the actual. They are usually made on the first date of the following accounting period and are the exact opposite of the accrual entry. This means they will debit whatever was credited and credit whatever was debited in the accrual.

Reversing entries are most common when calculating payroll. You can record an adjusting entry at the end of the month for wages a company owes but hasn’t paid. Then, you post a reversing entry at the beginning of the new month, ensuring you make the correct attribute to the payroll journal entry on payday.

If a company had a $500.00 advertising campaign that began in April but finished in May and the bill for this will not be sent to the company until June, assuming the March portion of the expense is $200.00, the journal entry to accrue for this advertising expense will be a debit to Advertising Expense for $200 and a credit to Accrued Expenses for the same amount. The reversing entry, to be entered on April 1, would then be a debit to Accrued expenses for $200 and a credit to Advertising Expenses for the same amount.

When to Reverse a Journal Entry?

Reversing entries are made on the first day of an accounting period to remove accrual adjusting entries that were made at the end of the previous accounting period.

There are two benefits of using reversing entries such as:

• It greatly reduces the chance of double-counting revenues and/or expenses, and
• It allows for more efficient processing of the actual invoices that will be processed in the new accounting period.

Reversing journal entries are the mirror image of the accrual they are reversing but are recorded at the beginning of the following month. This allows the actual entry for the expense or revenue to be recorded normally, without complicating the journal entry by accounting for the accrued amount. They simplify the bookkeeping process and minimize errors that might come from overstating expenses and/or revenues. They are not the same as correcting entries, which are the result of errors that may need to be reversed if they are captured after the close of the accounting period in which they were incurred.

Steps to Reverse a Journal Entry in QuickBooks Online

You should only create journal entries as a last resort or with the help of your accountant. If you need to, you can reverse a journal entry to update and correct it. Or, if you’ve created the entry by mistake then you can delete it.

Reverse a Journal Entry

If you need to divide a transaction between two accounting periods or fix a debit and credit error, follow the steps below.

This simply reverses the debits and credits – it doesn’t delete the original journal entry:

Step 1: Go for Chart of Accounts

• Go to Settings and then choose a Chart of accounts.

Step 2: Locate the Account

• Locate the account you created the journal entry for. Then, select Account history.

Step 3: Find the Journal Entry

• Find the journal entry under the account register. The word “Journal” should be in the Ref No. or Type column.

Step 4: Select the Journal Entry

• Choose the journal entry to expand the view. Then, click on Edit.

Step 5: Click Reverse

• Select Reverse. Then, press Save.

Once you reverse a journal entry, QuickBooks creates a new journal entry to balance it. This is a record of the change you made.

It has slightly different information:

• The new journal entry keeps the original journal no. and adds the letter “R”. This means it’s reconciled.
• The new journal entry holds the same info, such as the Account, Name, and Description, as the original journal entry.
• The new journal entry is dated the first day of the month following the original journal entry date.

Delete a Journal Entry

If you’ve created a journal entry by default, follow these steps to permanently delete it. You must be absolutely sure about deleting the journal entry.

This can quickly unbalance your accounts:

Note: If you invited your accountant to review your books, they can also make an adjusting journal entry instead of deleting the original entry.

Step 1: Go to Chart of Accounts

• Hover over Settings and then select Chart of accounts.

Step 2: Find the Account

• Locate the account you created the journal entry for. Then, click on Account history.

Step 3: Access Journal Entry

• Find the journal entry under the account register. The word “Journal” should be in the Ref No. or Type column.

Step 4: Select the Journal Entry

• Choose the journal entry to expand the view.

Step 5: Click Delete

• Hit the Delete tab. Then, press Yes to confirm.

Steps to Reverse a Journal Entry in QuickBooks Desktop

How you reverse a Journal entry depends on which version of QuickBooks Desktop you’re using:

If you’re using QuickBooks Desktop Pro: Press the Print button to print the general journal entry. Then, using the printed journal entry as a reference source, enter a new journal, except with the debits and credits reversed. In other words, if the to-be-reversed journal entry debits cash for $500 and credits interest income for $500, you enter a journal entry that credits cash for $500 and debits interest income for $500.

If you’re using QuickBooks Desktop Premier/Enterprise Solutions: When you locate the journal entry that you want to reverse, hit the Reverse button. (The Reverse button appears along the top edge of the Main tab of the Make General Journal Entries window.) QuickBooks reverses the general journal entry by entering a transaction in the next accounting month with the debits and credits flip-flopped.

Implications of Reversing Entries

Reversing entries is an accounting procedure made at the beginning of a new accounting period to reverse certain adjusting entries made at the end of the prior period. These entries simplify bookkeeping by canceling out accrued expenses or revenues.

Reversing entries are beneficial if their implications must be carefully considered:

1. Prevents Double-Counting: Reversing entries ensure accrued expenses or revenues from the prior period aren’t double-recorded in the current period.
2. Simplifies Data Entry: Makes bookkeeping easier by automatically clearing out prior period accruals, reducing manual efforts.
3. Improves Accuracy: Helps align income and expenses with the correct accounting period, avoiding financial misstatements.
4. Facilitates Automation: Works seamlessly with QuickBooks automated features, ensuring recurring transactions don’t create duplicate entries.
5. Reduces Errors: Eliminates confusion in recognizing and recording transactions spanning two periods.
6. Proper Setup Requirement: Incorrectly applied reversing entries in QuickBooks can lead to discrepancies in reports and balances.
7. Ensures Accurate Reports: Provides clear and more accurate financial statements by separating prior period adjustments from current period activity.

Reversing Entries Best Practices

There are several best practices associated with the use of reversing entries, which are as follows:

Proper Documentation: If you expect to keep an accrual for a long period of time before reversing it, then note down the accrual in the journal entry records, and review it as part of every month-end closing process until it is reversed.

Conduct Account Reconciliations: You need to complete account reconciliations for all balance sheet accounts at regular intervals, which will detect unreversed entries.

Backup Data: Don’t forget to create a backup before making significant changes to reversing entries.

Verify Entries Before Reversal: There should be a standard checklist of which reversing entries are to be made on a regular basis, so that you can make them as part of the closing process at the end of each month.

Audit Trail Review: You can use QuickBooks’ “Audit Trail” feature to track changes and identify potential issues with reversing entries.

Common Issues and Troubleshooting

Below we’ve listed some common mistakes and troubleshooting steps for the reversing entries in QuickBooks:   

Incorrect Setup of Reversing Entries

Issue: The reversing entry is not properly recorded, leading to inaccuracies in the accounts.

Solution: Double-check the original adjusting entry and ensure the reversing entry mirrors it exactly, with reversed debits and credits. Also, review dates to confirm the reversing entry is in the correct period (typically the first day of the new period).

Double-Counting Transactions

Issue: Transactions may be double-counted if the reversing entry is not applied correctly or if it’s overlooked.

Solution: Run a detailed transaction report to identify duplicate entries. Check that reversing entries were automatically applied if you rely on QuickBooks automation.

Missing Reversing Entries

Issue: Reversing entries are accidentally skipped, leaving prior period adjustments affecting the current period.

Solution: You can use QuickBooks’ “Audit Trail” to check if the reversing entries were created and schedule reversing entries or set reminders to ensure they’re consistently applied.

Wrong Date Selection

Issue: Reversing entries recorded on the wrong date can cause timing mismatches between periods.

Solution: Review the transaction dates in the reversing entry and ensure they match the intended period and adjust the date in QuickBooks if needed.

Automation Conflicts

Issue: Automation features, such as recurring transactions, may conflict with reversing entries, causing duplication.

Solution: Confirm the list of recurring transactions in QuickBooks and temporarily pause automation for affected accounts while resolving issues.

Reversing Invalid Accounts

Issue: Entries are reversed in the wrong accounts, leading to imbalances or incorrect balances.

Solution: Compare the original adjusting entry with the reversing entry for account mismatches and correct the reversing entry by editing the affected accounts.

Reports Showing Discrepancies

Issue: Financial reports may show unexpected balances due to reversing entry errors.

Solution: Run a trial balance or general ledger report to pinpoint discrepancies and search for unusual balances or accounts with unexpected activity.

Incomplete Adjustments

Issue: Partially reversed entries leave residual amounts in the accounts.

Solution: Manually adjust the remaining balance in the account and cross-check all adjustments to ensure they’re fully reversed.

Reversing Non-Reversible Entries

Issue: Reversing entries that shouldn’t be reversed, like prepaid expenses or long-term adjustments, can lead to errors.

Solution: Verify whether the original entry qualifies for reversal (typically accruals like wages or revenues) and exclude entries that should remain in the books.

Difficulty Tracking Reversing Entries

Issue: Having trouble when identifying reversing entries among other transactions in QuickBooks.

Solution: Use consistent descriptions or memo fields in QuickBooks to label reversing entries clearly and filter transactions by date or account to isolate reversing entries for review.

Conclusion

Journal Entry users may need to update a transaction or remove a transaction all together once it has been approved and posted. In this case, the user needs to reverse a journal entry. Reversing a journal entry updates the general ledger account balances and can be accessed via the General Accounting Module.

If you choose to use reversing entries, though, they can help you maintain accurate records with some relatively simple additions. When you do apply reversing entries, it’s important to review the process at the end of the month to ensure you reverse all accruals. You can also use reversing entries to account for past expenses and revenue to avoid over complicating the present activity and for future reference.

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