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At the end of an accounting period entries are often needed to reflect a more accurate picture for that month or year. However some of these entries are made on assumptions. These entries are often made to reflect revenue and expense matching.
One example of this is in the construction business. A construction company may determine that a project is completed up through a particular phase. The foundation and rough framing is done for example. There are costs that have been expensed on their books but maybe revenue has not been billed as of yet. And so in order to match income with expense this company would determine what percentage of revenue should be recognized in the current period based on what expenses were incurred and how much work was actually completed. Once this determination was made, an entry crediting the income and debiting a Work In Process asset account would be made. However, remember this was an estimate not an actuality. Once the job was completed the estimated income figure may be higher or lower. And so a reversing entry would be made on the first day of the following accounting period to negate this adjusting entry.
At the end of the second accounting period another analysis of cost vs revenue would be made and the adjusting entry to WIP would be made with the new determination and reversed in the following period.
Construction is not the only type of industry that uses WIP (Work In Process), manufacturing and any company that maintains inventory are other examples.
Whenever you have receipts or payments taking place in future accounting periods that need to be recognized in the current period you will use this technique of booking an adjusting entry in the current period and reversing that entry on the first day of the following period.