Question

K. Canopy, the proprietor of Canopy Services, withdrew $5,700 from the business during the current year. The entry to close the withdrawals account at the end of the year is:

1) Debit K Canopy, Withdrawals $5,700; credit Cash, $5,700
2) Debit K. Canopy, Capital $5,700; credit K. Canopy, Withdrawals $5,700
3) Debit K. Canopy, Withdrawals $5,700; credit K. Canopy, Capital $5,700
4) Debit K. Canopy, Capital $5,700, credit Salary Expense $5,700
5) Debit Income Summary $5,700; credit K. Canopy, Capital $5,700

Answer 1

The entry to close K. Canopy's withdrawals from the business at the end of the year is to debit K. Canopy, Capital and credit K. Canopy, Withdrawals for $5,700, reflecting the reduction in owner's equity.

Step-by-step explanation:

When K. Canopy, the proprietor of Canopy Services, withdraws cash from the business, this is recorded as a reduction to owner's equity, since withdrawals represent owner's taking out part of their investment/capital from the company. At the end of the accounting period, the entry to close the withdrawals account involves transferring the balance of the withdrawals account to the owner's capital account to reflect this reduction in equity.

The correct entry to close the withdrawals account at the end of the year is Debit K. Canopy, Capital $5,700; credit K. Canopy, Withdrawals $5,700. This entry decreases the Withdrawals account by $5,700, bringing it to a zero balance, and also decreases the Capital account by the same amount to reflect the owner's reduction in equity.

The correct entry to close the withdrawals account at the end of the year is:

Debit K. Canopy, Capital $5,700; credit K. Canopy, Withdrawals $5,700.

When a proprietor withdraws money from their business, it is recorded as a reduction in their capital account and an increase in the withdrawals account. This entry helps track the owner's personal withdrawals separate from the business's financial activity.