Question

Reversing entries are made at the end of the accounting cycle to correct errors in the original recording of transactions. True or False?

Answer 1

False. Reversing entries are made at the beginning of the accounting period, not at the end, to cancel out any accruals or deferrals made in the previous period.

Step-by-step explanation:

False. Reversing entries are made at the beginning of the accounting period, not at the end, to cancel out any accruals or deferrals made in the previous period. They help ensure that financial statements accurately reflect the current period's transactions.

For example, if a company accrues $1,000 of revenue at the end of December but doesn't receive the cash until January, a reversing entry would be made at the beginning of January to reverse the accrual. This ensures that the revenue is only recorded in the correct period. Reversing entries simplify the subsequent recording of transactions and help prevent errors, but they are not used to correct errors in the original recording of transactions.