Reversing Accruals

By Jotham Ty

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.

"Gappify has improved our vendor onboarding process and streamlined our accruals, which now takes a few hours vs. days to complete. Effortless integration with NetSuite ensures accuracy, security, and completeness of records. Gappify is a must have resource to scale accounting.”

"Gappify's automation has made a big impact on our AP team, reducing the time spent to onboard new vendors and process information in NetSuite. Their solution helps us create more scale from accounting and keep costs low, even as our company has grown."

“In an era of new business models and changing accounting standards, accounting professionals need automation so that they can deliver fast, correct and smooth close processes. Gappify and their accounting bot Alan equip finance staff to keep pace with the speed of business, and enable finance transformation in an era of increasing complexity."

“Gappify has improved and streamlined our vendor onboarding process and provided us with a simple, secure, and automated way to collect and verify vendor master data and integrate seamlessly into our ERP system. Gappify has been excellent to work with to continuously evolve and mature our vendor onboarding process."

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.

Gappify is proud to be SOC1, SOC2 and EU Privacy Shield certified. Our customers include Reddit, Dropbox, Calm, Pinterest, Yext, Ginger, Collibra, SurveyMonkey and Twilio. For more information, visit www.gappify.com

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