When a company closes its accounts annually, the revenue, expense, and dividend accounts reflect year-to-date balances. To prepare financial statements for a shorter period (such as a month or quarter), the balances of revenue and expense accounts must be adjusted to reflect just the activities for the desired period.
This is done by subtracting the balances of revenue or expense accounts at the start of the period from their balances at the end of the period. This process must be repeated for all revenue and expense accounts. However, no adjustments are needed for balance sheet accounts, as they are based on the account balances at the specific date.