In today’s article we will introduce the term “reversal” to the accounting dictionary. Find out what it is, how it works, when it is used, and what types it is. We explain!
What is a reversal? Definition of the term
A reversal is the cancellation of an accounting entry that is already posted in the accounting books. This can happen because of an entry error or a change in the accounting plan. It occurs when it is necessary to correct an accounting entry.
To make a reversal, a cancellation of an accounting entry must be posted. This is an accounting entry that is a correction of an earlier entry. This correction causes the account total to decrease by the amount of the accounting entry. Remember that cancelling a bookkeeping entry is allowed only if 2 years have not passed since the entry was posted. If 2 years have passed, then the accounting entry is no longer cancellable.
How does the cancellation work?
Whether you are a business or an individual, there is a high probability that you will have to make a cancellation. A cancellation is nothing more than the cancellation of a transaction that has been entered into accounting. This can happen, for example, when you buy something on installments and cancel the purchase, or when you receive an invoice for something you didn’t buy. In such cases, you need to make a reversal so that your accounting is in order.
There are several ways to make a cancellation. The simplest is to simply cancel the transaction. This can be done by entering the appropriate amount in the “amount” column on the invoice. Then enter the date of the cancellation in the “date” column. This will update the accounting correctly.
Another way to make a cancellation is to move the amount to another month. To do this, enter the amount in the “amount” column on the invoice, and then enter the date of the cancellation in the “date” column. Then move to the next month and enter the same amount in the “amount” column. This will update the accounting correctly.
The last way to make a cancellation is to enter the amount in the “amount” column on the invoice and the cancellation date in the “date” column. Then go to the next month and enter the amount in the “amount” column. This will update the accounting correctly.
When is a reversal applied?
In the case of an accounting reversal, it is the deletion of an amount in the books of account that was previously entered. It is usually a correction of a mistake made by the accountant.
Another reason why a reversal is used is to cancel a transaction that did not take place. In this case, the accountant deletes the entry from the books and corrects the account balances.
However, there are situations in which a reversal is permissible and is not considered an accounting error. This can be, for example, the deletion of an entry relating to a transaction that is not in compliance with the law or was made under a contract that has been canceled.
It is worth remembering that an accounting reversal is often mistakenly confused with a change in data previously entered in the books. Changing the data is nothing more than correcting an error we made when entering the data. There is no need to perform a reversal, as it has no effect on account balances.
Types of reversals
There are two types of reversals: complete and partial. A complete reversal means cancelling an entry in its entirety. A partial reversal means cancelling only part of an entry. For example, if you buy something for 100 zloty and then decide that you want to return the goods, you will make a partial reversal, which will be 100 zloty.
To make a reversal, you must have the appropriate permissions in the accounting system. These permissions can be set by the manager or head of the company.
A cancellation is an important part of accounting because it allows you to correct errors and enables you to account properly to the tax authorities.
