All adjusting entries should be reversed at the start of the new accounting period.Select one:TrueFalse

Understanding the Concept

Adjusting entries are made at the end of an accounting period to accurately reflect the financial position of a business. These entries can include accruals and deferrals, which align expenses and revenues with the correct accounting periods.

Reversal of Adjusting Entries

1. Purpose of Reversal: Reversing entries are made at the beginning of the next accounting period to simplify the accounting process. They remove the effects of certain adjusting entries made in the previous period.

2. When to Reverse: Typically, only adjusting entries that involve accrued revenues and expenses are reversed. This is done because it helps to avoid double-counting revenues and expenses in the new period.

Conclusion

Reversing adjusting entries isn't a universal requirement and depends on the nature of the adjustments made. Therefore, the statement "All adjusting entries should be reversed at the start of the new accounting period" is False. Not all entries need to be reversed, only specific ones that have accrued nature should be considered for reversal for more accurate financial reporting.