What is a reversing journal (and when to use one)?
A plain-English guide to reversing journals — what they are, why accruals use them, and how to avoid double-counting.
This walkthrough explains what a reversing journal is, how it automatically cancels an accrual at the start of the next period, and why that prevents double-counting when the real invoice arrives. It helps bookkeepers and finance teams managing accruals in Xero, including those using WorkWithLottie to automate the process.
A reversing journal is an entry that automatically undoes itself on a future date — usually the first day of the following period.
Why they exist
Accruals and some prepayments are estimates for a period. Next period, the real transaction arrives. If the estimate isn't reversed, you'd count the cost twice. A reversing journal removes the estimate cleanly before the actual lands.
How it works
- Post the accrual on the last day of the month.
- Set it to auto-reverse on the 1st of the next month.
- Enter the real bill when it arrives — only the difference from the estimate affects the new period.
Worked example
Accrue £450 for March electricity; reverse £450 on 1 April; post the actual £470 bill in April. Net April impact: £20. Full example: how to record accrued expenses in Xero.
Automatically handled
WorkWithLottie posts auto-reversing accruals for you and tracks estimate versus actual.
Related: The monthly accrual journal template
Frequently asked questions
What is a reversing journal entry?
A journal that automatically reverses on a chosen date — typically the first day of the next period — so a temporary entry like an accrual doesn't linger and double-count.
Why are accruals posted as reversing journals?
Because the real invoice will arrive next period. Reversing the accrual first stops both the estimate and the actual bill hitting the profit & loss.
More on Accruals
All guidesWhat is an accrual? Definition & examples
A plain‑English definition of an accrual, how it differs from a prepayment, and common examples in month‑end accounting.
ReadHow to record accrued expenses in Xero
How to accrue for costs you've incurred but not yet been billed for in Xero — with the journal, the reversal, and a worked example.
ReadThe monthly accrual journal: a reusable template
A simple, reusable template for your monthly accrual journals — what to include, how to reverse, and how to keep the schedule reconciled.
ReadLet Lottie handle this for you
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