How do I designate a journal entry as an auto-reversing entry?
Understanding how reversing entries work:
To setup an adjusting journal entry, so it automatically reverses in the next accounting period:
For example: A company pays rent of $3000 on the 10th of each month. On the 10th of July the company pays the whole monthly rent amount and records it as an expense. The company wants to pro-rata the rent, so rent portion for June 2016 (10th of June to 30 June or 2/3 of the monthly rent) is recorded in the current financial period as an adjusting entry. To eliminate the impact of double-recording, the company can post a reversing entry on the 1st of July, which will eliminate the impact of the adjusting entry on the July financial statements.
(1) Adjusting Journal Entry recorded at the end of June.
Rent Expense = $3000 x 2/3 = $2000
Note: MAKE SURE THE Auto Reverse BOX IS TICKED. (This will ensure that this adjusting entry is automatically reverse in the next period.)
(2) Auto-Reverse Journal Entry: