Beachside Realty Adjusted Trial Balance and Journal Entry Explanation

How to close the revenue and expense accounts at the end of the period?

What are the steps involved in closing the revenue and expense accounts based on the adjusted trial balance of Beachside Realty on December 31?

Journal Entry to Close Revenue and Expense Accounts:

To close the revenue and expense accounts at the end of the period, we need to follow these steps:

When closing the revenue and expense accounts at the end of the accounting period, the process typically involves transferring the balances of these accounts to the Income Summary account before ultimately transferring them to Retained Earnings.

1. Debit all revenue accounts, including Rent Fees Earned, Furniture Rental Revenue, and Interest Revenue, for a total of $38,300.

2. Credit the Income Summary account with the total amount of revenue, $38,300.

3. Debit the Income Summary account for the same amount, $38,300.

4. Credit all expense accounts, including Wages Expense, Depreciation Expense, Utilities Expense, Insurance Expense, Maintenance Expense, and Income Tax Expense for their respective amounts.

5. After posting this journal entry, the Income Summary account will have a zero balance, and the Retained Earnings account will have a balance equal to the net income for the period.

By following these journal entry steps, Beachside Realty can effectively close the revenue and expense accounts in preparation for the next accounting period.