Chapter 6, Problem 1.1SRQ

What is the journal entry to close the drawing account?

To determine

Prepare journal entry to close the drawing account.

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

• Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
• Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Closing entries: The journal entries prepared to close the temporary accounts to capital account are referred to as closing entries. The revenue, expense, and drawing accounts are referred to as temporary accounts because the information and figures in these accounts is held temporarily and consequently transferred to permanent account at the end of accounting year.

Close the Drawing account to Capital account.

Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
		Capital			xxx
			Drawing			xxx
		(Record closing of drawing to capital account)

Table (1)

Description:

• Capital is an equity account. Since capital amount is transferred to drawings account, the value is decreased, and a decrease in equity is debited.
• Drawing is an equity account. Since drawings are transferred, the account is credited to reverse the previously debit effect.