The date and time of a backdated entry do not have to be in the past. You should also use this option if you would like to make an entry with a future date or time. If you give an entry a future date or time without selecting the "Backdate" option, and subsequently try to make a post dated earlier than your future-dated post, you will encounter an error and LiveJournal will not accept the entry.
On someone's Friends page, the placement of your journal entries is based on when you actually posted them, not on the dates and times you entered. Checking the "Backdate Entry" box prevents your entry from appearing on those pages.
The option doesn't have any effect on your own Recent Entries pages, because sorting of the entries there is always based on the date and time you specify, and you can always find an entry through the Calendar view (http://www.livejournal.com/support/faqbrowse.bml?faqid=70 ).
The "Backdate Entry" option can be selected on the full Update Journal page (http://www.livejournal.com/update.bml?mode=full ), and can be modified later by editing (http://www.livejournal.com/support/faqbrowse.bml?faqid=2 ).
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