Reversals, explained

A journal entry is one record in the books: which accounts change, by how much, and on which side, debit or credit. Once it's posted, meaning saved to the ledger and counted in reports, it stays exactly as written. A reversal cancels a posted entry without erasing it.

It's the same entry with the sides swapped. Each debit in the original becomes a credit of the same amount, and each credit becomes a debit. The pair nets to zero, so the mistake stops affecting any balance while both records stay visible.

Fixing a mistake takes three entries. The original stays. The reversal cancels it, linked to the original and dated in the open period. Then the correct entry is posted, so anyone reading the ledger later can see what was booked, what undid it and what replaced it.

Reversals are also used on purpose. A month-end accrual is often set to reverse on the first day of the next month. When the real invoice arrives and is booked normally, the reversal offsets it and the cost isn't counted twice.

A $2,500 software bill was posted as rent expense. The reversal debits accounts payable $2,500 and credits rent expense $2,500, which takes rent back down and removes the payable. A new entry then debits software expense and credits accounts payable for $2,500.

The net effect is rent down $2,500, software up $2,500, and payables still showing the $2,500 Acme owes the vendor. The ledger holds three entries where an edit would have left one, and the history is intact.

Period locks mean an error found after the close is corrected in the open month, by reversal and re-entry, rather than by editing the closed one, and the audit trail links the three entries together. In diligence, a reviewer can follow each correction back to the entry it fixed.