Xacc280 Week 5 Dqs

Discussion Question One

What are reversing entries and why are they required? What would happen if reversing entries were not made? What transactions might require reversing entries? What transactions might not require reversing entries?

Reversing entry is a special type of adjusting entry that is made at the beginning of an accounting period. Reversing entry keeps track of expenses so that transactions will be allocated properly between the two periods preventing the double counting that would overstate revenues and expenses in the next accounting period. If the reversing entry is not made the books for next year would be incorrect. Using the reversing entry is optional and depends on the judgment of the accountant but is appropriate for adjusting entries that involve the recording of accrued revenues and expenses. The reversing entry is most often used for payrolls or any transaction that involves future cash flow.   Transactions that do not involve accrued revenues or expenses may not require reversing entry.

Discussion Question Two

•         After examining Illustration 4-5 on p. 151 of Financial Accounting, what do you consider might happen if

o   revenue accounts are not closed? Explain why.
o   expense accounts are not closed? Explain why.
o   dividends are not closed? Explain why.

Respond to your classmates’ postings by agreeing with, disagreeing with, or modifying their speculations. Provide reasons for your opinions.

•         Due Date: Day 4 [post to the Main forum]

The purpose of the closing entry is to bring the temporary account balances to zero in order to make room for the accumulation of data in the next accounting period. When accounts start with zero balances in the temporary accounts it is much easier for an accountant to track revenues, expenses, and dividends which are the temporary accounts that need to be closed and the accounts can be compared to one year to the next. Another reason for closing is so the...