There are some occasions when you have to reverse a contract on which a receivable component has been liquidated. The following is an example:

You issue an LC for Gem Granites on 01 January 1998, for which the charges and commission was debited from a receivable account. On 05 January 1998, you liquidate the commission from the customer’s account.

Thereafter, say on 07 January 1998, you reverse the LC. All the entries for the LC that were passed when the LC was stored (including the entries passed into the receivable account) will be reversed. However, the entries that were passed to liquidate the commission from the customer’s account (which was subsequently done through the liquidation function) will not be reversed. This entry will be reversed by the LQ EOTI of 07 January 1998.