What is the accounting entry to close the sole proprietorship drawing account?
The journal entry to close the drawing or withdrawal account of a sole proprietorship includes a debit to the owner’s capital account and a credit to the drawing account.
To illustrate the closing entry, let’s assume that at the end of the accounting year the account Eve Jones, Drawing has a debit balance of $24,000. This balance is the result of Eve withdrawing $2,000 per month from her sole proprietorship for her personal use. (Each monthly withdrawal was recorded with a debit to Eve Jones, Drawing and a credit to Cash.) The journal entry to close the drawing account requires a credit to Eve Jones, Drawing for $24,000. The other part of the entry is a debit of $24,000 to Eve Jones, Capital.
The drawing or withdrawal account is a temporary owner equity account, requiring it to be closed at the end of the accounting year. The drawing account is also a contra account to owner’s equity, because the drawing account’s debit balance is contrary to the normal, expected balance for an owner equity account.
Also note that the drawing account is closed directly to the capital account. The drawing account is not an expense and as a result it does not get closed to the Income Summary account.
Learn more about accounting entries at Debits & Credits.
About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years. He is the creator and author of all the content found on AccountingCoach.com. You can read 1,500 testimonials praising his ability to explain accounting in a way that anybody can understand.
|Learn more about AccountingCoach Pro|
Accounting Q&A by Topic
Over 800 questions have been answered in the following categories:
- Accounting Basics
- Accounting Careers
- Accounting Equation
- Accounting Principles
- Accounts Payable
- Accounts Receivable and Bad Debts Expense
- Activity Based Costing
- Adjusting Entries
- Balance Sheet
- Bank Reconciliation
- Bonds Payable
- Break-even Point
- Business Investments
- Cash Flow Statement
- Chart of Accounts
- Cost and Managerial Accounting
- Debits and Credits
- Financial Accounting
- Financial Ratios
- Improving Profits
- Income Statement
- Inventory and Cost of Goods Sold
- Lower of Cost or Market
- Manufacturing Overhead
- Nonmanufacturing Overhead
- Payroll Accounting
- Present Value of an Ordinary Annuity
- Present Value of a Single Amount
- Standard Costing
- Stockholders’ Equity