Geoff’s Tailor is a small business operated by Geoffrey Restin. The accounting records for this business are maintained by Markey & Michaels, CPAs. Recently, Restin questioned the monthly accounting bill submitted to him by the CPA firm. Included in the bill were the following line items, among others:
Adjustment of year-end account balances:
5 hours @ $80 per hour................................................................ $400
Year-end closing of revenue and expense
accounts: 2 hours @ $80 per hour................................................ 160
Restin does not understand why his accounting records must be adjusted at year-end. In a recent telephone conversation, he complained to a partner of Markey & Michaels, ‘‘If you guys did my accounting records right the first time, you wouldn’t have to adjust them at year-end.’’ Restin went on to protest the $160 charge for closing his business’s revenue and expense accounts. ‘‘Why do you close those accounts every December 31? Don’t you always use them again the next year? I think you’re closing them just to run up my bill.’’
Required:
Write a memo to Geoffrey Restin explaining the purpose of, and need for, period-ending adjusting and closing entries.