Reversing Accruals

To reverse (accrual JEs) or not to reverse, that is the question!

As someone who’s been lucky to have spoken to hundreds of accountants about their accrual process (no sarcasm here – if you know me well you already know how passionate I am about accruals), I still bump into a few “traditionalists” occasionally who insist on using the old school method of booking true-ups when accruing for expenses.

No complex demystifying needed here – there are 3 simple and practical reasons why reversing accruals are the most efficient and effective approach.

Here’s the quick scoop:

Reason #1:

Reversing entries require no calculation.

When booking reversing entries, you’re simply recording the accumulated unbilled balance.

No need to calculate the delta between your last accrual and the current running total – you’re just taking the current running total and booking that entire amount.

Reason #2:

Booking estimates received from confirmations becomes mechanically easier.

Similar to the above, if all you have to do is take the full unbilled expense amount from confirmations received directly from vendors or internal business partners (i.e., you don’t have to back-out previously booked accruals), those amounts flow more seamlessly into your GL entries.  

Reason #3:

Easier to detect missing re-accruals.

This is my personal favorite. When you book accruals as reversing entries, missing re-accruals are easier to track down the following month.

For example, if (1) your 6/30 accrual entry of $10K is reversed on 7/1 (for -$10K), and (2) the bill does not arrive in July – these anomalies are easier to detect in TB reviews, as you’ll see large/suspicious negative balances.

In conclusion...

I understand reversing JEs are not prescribed in accounting textbooks nor are they covered in CPA exams, but the operational benefits of recording and maintaining accruals under this approach are very clear. There is a good reason why 98%+ of organizations I’ve been around apply this accrual methodology.

Jotham Ty
Founder & CEO
Gappify, Inc.

About Gappify

Gappify is a cloud-based provider of process automation for mid-market and enterprise accounting teams. Our digital worker, Alan integrates into NetSuite and SAP to initiate and complete various routine tasks. Thanks to Alan, companies are able to leverage highly-skilled accountants to focus on more value-add work.

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