The Complete Guide to Prepayment Amortization for Finance Teams
Learn how to correctly record, track, and amortize prepaid expenses so your balance sheet is always accurate — without Excel.
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Accounting Fundamentals5 min read13 March 2026
How to Reverse a Journal Entry: When and How to Do It Correctly
Journal entry reversals are a standard accounting technique — but getting the timing and treatment wrong creates more problems than it solves.
A journal entry reversal is the exact opposite of the original entry — debits become credits and credits become debits — posted in a subsequent period to cancel out the original effect. It is a standard technique in accrual accounting, most commonly used for accruals that will be replaced by actual invoices.
When to Reverse a Journal Entry
- Accruals raised at period end that will be replaced by supplier invoices in the next period
- Prepayments that were set up incorrectly and need to be removed
- Adjusting entries that were correct for one period but do not carry forward
- Error corrections where the original entry needs to be fully removed
When Not to Reverse
Not every adjusting entry should be reversed. Prepayment amortization entries, for example, are not reversed — they represent the genuine recognition of expense in that period and should stand. Depreciation entries are not reversed. Only entries that represent timing differences — where the actual will replace the estimate — should be reversed.
The Reversal Entry
Original accrual (31 March): Dr Professional Fees £3,000, Cr Accrued Liabilities £3,000 Reversal (1 April or first day of next period): Dr Accrued Liabilities £3,000, Cr Professional Fees £3,000 Then post the actual invoice when received: Dr Professional Fees £3,000, Cr Accounts Payable £3,000
The net effect across both periods: £3,000 expense in March (from the accrual), nil in April (reversal + invoice net to zero). The cost sits entirely in the period it relates to.
Timing of the Reversal
Best practice is to post reversals on the first day of the new period, before any other entries for that period. This prevents the accrual balance from being counted twice if someone looks at the accrued liabilities account partway through the month.
Common Mistakes
- Reversing in the wrong period — the reversal must be in a different period to the original
- Forgetting to reverse — the accrual sits on the balance sheet indefinitely
- Reversing and then not posting the invoice — the expense disappears entirely
- Reversing a prepayment amortization entry — this undoes the expense recognition incorrectly
Further Reading
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