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Reversing Entries: When to Use Them, Worked Examples and How ERPs Auto-Reverse Accruals
Last updated: October 16, 2026 · Independent guide · We do not sell rankings or coverage.
Reversing entries are journal entries posted on the first day of a new period that cancel selected accruals from the period just closed. You use them when a later transaction, such as a payroll run or a vendor bill, will record the full amount again, so the accrual does not get counted twice. Accrued wages, accrued payroll taxes and invoice-driven accrued expenses are the usual candidates. Prepaid amortization, depreciation and balance-based estimates should never reverse.
The reversing entry rule and its journal entries
Reverse an accrual only when the next transaction will post the whole cost or revenue to the income statement again. If that transaction will only clear the liability, or if no transaction is coming, do not reverse. The cycle for an accrued expense looks like this.
| Account | Debit | Credit | Note |
|---|---|---|---|
| 1. Expense (for example, wages) | Estimate | Last day of the period the cost was incurred | |
| Accrued liabilities | Estimate | Flagged to reverse | |
| 2. Accrued liabilities | Estimate | Reversing entry, day 1 of the next period | |
| Expense | Estimate | Temporary credit balance in expense | |
| 3. Expense | Actual | Payroll run or vendor bill, posted normally | |
| Cash, payroll liabilities or AP | Actual | New period keeps only actual minus estimate |
Which accruals to reverse and which not to
If payroll or AP will post the full amount to expense without looking at the accrual, reverse it. If the balance rolls forward and is trued up to a calculation, leave it alone.
| Entry | Reverse? | Why |
|---|---|---|
| Accrued wages and employer payroll taxes | Yes | The payroll journal posts the full gross pay and taxes to expense |
| Utilities, professional fees, contractors, freight | Yes | AP codes the bill to the expense account |
| Accrued (unbilled) revenue | Yes, if the invoice posts full revenue | Billing records the revenue again |
| Goods received not invoiced | No, if the ERP posts receipts | The matched bill clears the clearing account |
| Accrued interest, bonuses, PTO | Usually no | Balances build and are trued up to a schedule |
| Prepaid amortization, deferred revenue release | Never | No later transaction re-records the amount |
| Depreciation, allowance and inventory adjustments | Never | A reversal would cancel next month’s expense |
Our guide to adjusting journal entries covers the five adjustment types in full, and the accrued expenses journal entry guide covers estimating accruals and building the support schedule.
Worked example 1: accrued payroll across September and October
Illustration only. The company, amounts and tax rate are invented to show the mechanics.
Step 1: find the September share. A company pays biweekly. The pay period runs Monday, September 21 to Sunday, October 4, 2026, and is paid on Friday, October 9. Eight of the ten working days fall in September. Scheduled hours put the run at $85,000 gross, so the September share is $85,000 × 8 ÷ 10 = $68,000.
Step 2: add employer payroll taxes. Using an illustrative blended employer rate of 8%, accrued payroll taxes are $68,000 × 8% = $5,440.
Step 3: post the September 30 accrual, flagged to reverse.
| Account | Debit | Credit | Note |
|---|---|---|---|
| Wages expense | $68,000 | September 30 | |
| Payroll tax expense | $5,440 | September 30 | |
| Accrued wages | $68,000 | Reverses October 1 | |
| Accrued payroll taxes | $5,440 | Reverses October 1 |
Step 4: let the reversal post on October 1. The system debits accrued wages $68,000 and accrued payroll taxes $5,440, and credits the two expense accounts. Both liabilities are now zero, and October starts with a $73,440 credit in payroll expense.
Step 5: post the October 9 payroll as normal. Overtime pushed the actual run to $86,200 gross, with employer taxes of $6,896. The payroll integration debits the full $86,200 and $6,896 to expense. After the reversal, October carries $18,200 of wages and $1,456 of payroll taxes from this run. October’s true share was two days, or $17,240 of wages, so the $960 difference is September overtime that the estimate missed. It lands in October.
Step 6: accrue again at October 31. All ten working days of the October 19 to November 1 period fall in October, so you accrue the whole expected run and reverse it on November 1.
Without the reversal, the October 9 payroll still posts $86,200 to expense. October wages are overstated by $68,000, and accrued wages keeps a $68,000 balance that nobody owes unless someone splits each payroll journal by hand.
Worked example 2: accrued expenses with a late invoice
Illustration only. On September 30 the same company accrues two costs and flags both to reverse on October 1:
- An IT consultant worked 38 approved hours at $250 an hour, so you accrue $9,500. The invoice arrives October 14 for $9,800, including $300 of travel.
- Outside counsel estimates $6,000 of September work. By October 31 no bill has arrived.
The consultant accrual works as planned: October shows $9,800 − $9,500 = $300. The legal reversal credits expense $6,000 with nothing to offset it, so at October 31 you re-accrue the $6,000 plus any October work, again flagged to reverse.
The table shows what each treatment of the consultant accrual does to the two months.
| Treatment | September expense | October expense | Accrued liability at October 31 |
|---|---|---|---|
| Reverse; AP codes bill to expense | $9,500 | $300 | $0 (correct) |
| No reversal; AP codes bill to expense | $9,500 | $9,800 | $9,500 credit (double count) |
| Reverse; AP codes bill to accrued liabilities | $9,500 | −$9,500 | $9,800 debit (cost lost) |
| No reversal; AP codes bill to accrued liabilities | $9,500 | $0 | $300 debit (manual clean-up) |
Only the first row is right without clean-up. Rows two and three are the errors a reversal policy prevents, and both come from mixing methods for one vendor.
The rules behind reversing entries
No FASB standard requires reversing entries. They are an optional bookkeeping technique, and the reported results are the same if you clear accruals correctly another way. The accrual itself rests on the definition of a liability in FASB Concepts Statement No. 8, Chapter 4 (December 2021): “A liability is a present obligation of an entity to transfer an economic benefit.” Wages for days already worked meet that definition on September 30.
Tax timing differs from book timing. The IRS says federal payroll tax deposit rules are “based on the dates when wages are paid (cash basis),” not on when liabilities are accrued for accounting (IRS Topic 757, updated October 14, 2026). Your accrued payroll taxes are a book estimate only. For year-end wage and bonus accruals, 26 CFR 1.404(b)-1T, Q&A-2 treats pay received within 2½ months after the employer’s year end as not deferred for more than a brief period; confirm deduction timing with your tax adviser.
PCAOB AS 2401, paragraph .61, tells auditors to consider period-end and post-closing entries with little or no explanation, so give each accrual a description and a link to its support.
Common mistakes
- Auto-reversing balance-based entries. Flagging a prepaid, depreciation or bonus true-up to reverse wipes out the next month’s expense.
- AP coding the bill to the accrual account. If the accrual also reverses, the cost disappears, as row three above shows.
- Not re-accruing unbilled costs. When the bill has not arrived, the reversal leaves a credit in expense. Re-accrue every month until it does.
- Accruing GRNI twice. If your ERP already posts receipts to a received-not-invoiced account, a manual reversing accrual for the same goods double counts them.
- Editing the original after the reversal is created. In NetSuite, a change to the original entry also changes the linked reversal, so review both.
How reversing entries are reported
Reversing entries are not shown separately. At period end the accrual sits in accrued liabilities, and the reversal posts in the next period. Mid-month flash reports can show negative expense until payroll and bills post, so tell reviewers which accounts carry reversals. Reconcile accrued liabilities to the support schedule at each month end; our general ledger reconciliation guide covers the review and sign-off steps.
How QuickBooks, NetSuite, Business Central and Sage Intacct auto-reverse accruals
| Product | Auto-reverse setting | Reversal date | Main limitation |
|---|---|---|---|
| QuickBooks Online | None documented; manual Reverse | First day of the following month | Someone must reverse each entry |
| Oracle NetSuite | Reversal Date plus Defer Entry | Any date you enter | Reversal cannot be edited directly |
| Business Central | Reversing recurring methods (RF, RV, RB, RBD) | Next day, or by date formula | Lives in the recurring journal |
| Sage Intacct | Automatic reversal date on the entry | Any date today or later | A reversal cannot be undone |
QuickBooks Online. Intuit describes a manual action: open the entry from the account history, select Edit, Save, then Reverse. The new entry is dated “the first day of the month following the original journal entry date.” Intuit describes no way to schedule the reversal, so put reversals on your day-1 checklist.
Oracle NetSuite. On Transactions > Financial > Make Journal Entries, enter a Reversal Date. With Defer Entry checked, the reversal becomes a memorized transaction created automatically on that date; cleared, the reversal is entered immediately with the Reversal Date as its transaction date. The reversal is an exact opposite, including the original exchange rate, and stays permanently linked to the original. A saved search on Is Reversal lists reversals at close.
Microsoft Dynamics 365 Business Central. In Recurring General Journals, the Reversing Variable (RV) method suits payroll accruals: the amount is deleted after posting so you enter each month’s estimate, and “a balancing entry is posted on the next day.” Reversing Fixed (RF) keeps the amount for fixed accruals. A Recurring Frequency of 1D+1M-1D posts on the last day of every month. The Reversal Date Calculation field changes the reversal date, but you must add it by personalizing the page.
Sage Intacct. A general ledger journal entry has an Automatic reversal date field in its header that “creates a reversal to the transaction on the date that you enter.” Recurring templates under General Ledger > All > Journal entry templates offer “Automatically reverse this journal entry,” linked to the original date or on an independent schedule, and need standard reporting periods. Entries created in subledgers such as Accounts Payable cannot be reversed in the General Ledger. For review workflows around these entries, see our guide to accounting close automation.
How we researched this
We read the top-ranking pages for “reversing entries” from AccountingTools, Principles of Accounting, BooksTime (which sells bookkeeping services) and Planergy (which sells AP software). None shows system settings, the AP coding conflict or the missing-invoice problem. We then read the vendor documentation and the IRS, eCFR, FASB and PCAOB sources below on October 16, 2026. We did not test the products hands-on, and no vendor paid for or reviewed this article.
Related guides
Frequently asked questions
Which adjusting entries should be reversed?
Reverse accruals that a later transaction will record in full: accrued wages, accrued payroll taxes, invoice-driven accrued expenses and accrued revenue that billing will post again. Do not reverse prepaid amortization, deferred revenue releases, depreciation, allowance changes or inventory adjustments.
Are reversing entries required under GAAP?
No. They are an optional bookkeeping technique, and the financial statements come out the same if you clear accruals correctly another way. Most teams use them because payroll and AP can then post transactions normally.
What if the invoice does not arrive the month after you accrue it?
The reversal leaves a credit in the expense account. Re-accrue the cost at the next month end, flagged to reverse again, and keep doing so until the bill posts.
Can QuickBooks Online automatically reverse a journal entry?
Intuit’s documentation describes only a manual Reverse action, which dates the new entry on the first day of the following month. NetSuite, Business Central and Sage Intacct can schedule the reversal when you create the accrual.
Sources
- Intuit, Reverse or delete a journal entry in QuickBooks Online, published August 5, 2026 (vendor documentation).
- Oracle NetSuite Help, Reversing Journal Entries, no date shown, checked October 16, 2026 (vendor documentation).
- Microsoft Learn, Work with general journals (recurring journals), last updated April 7, 2026 (vendor documentation).
- Sage Intacct Help, Field descriptions: Journal entries, last modified October 8, 2026 (vendor documentation).
- Sage Intacct Help, Recurring journal entries, last modified October 8, 2026 (vendor documentation).
- Sage Intacct Help, Reverse journal entries, last modified October 8, 2026 (vendor documentation).
- FASB, Concepts Statement No. 8, Chapter 4, Elements of Financial Statements, December 2021 (hosted by PwC Viewpoint).
- IRS, Topic no. 757, Forms 941 and 944: deposit requirements, updated October 14, 2026.
- eCFR via Cornell LII, 26 CFR 1.404(b)-1T, Q&A-2, no date shown, checked October 16, 2026.
- PCAOB, AS 2401, Consideration of Fraud in a Financial Statement Audit, no date shown, checked October 16, 2026.
- AccountingTools, Reversing entries, May 16, 2026 (reviewed as a top-ranking result).
- Principles of Accounting, Reversing Entries, last modified December 15, 2025 (reviewed as a top-ranking result).
- BooksTime, Overview of Reversing Entries, October 15, 2020, modified May 27, 2023 (sells bookkeeping services).
- Planergy, Reversing Entries, no date shown (sells AP automation software).
Sherman Hsieh
Independent analysis of enterprise software — ERP, CRM and more
