Question

The appropriate format of the December 31, 2017 closing entry for John & Hope Limited Liability Partnership, whose two partners had withdrawn their salaries from the partnership during the year, is: A) John, Drawing XXX Hope, Drawing XXX Salaries Payable XXX B) Salaries Expense XXX John, Drawing XXX Hope, Drawing XXX C) John, Capital XXX Hope, Capital XXX Salaries Payable XXX D) John, Capital XXX Hope, Capital XXX John, Drawing XXX Hope, Drawing XXX

Answer 1

D)

John, Capital XXX

Hope, Capital XXX

John, Drawing XXX

Hope, Drawing XXX

Step-by-step explanation:

In a partnership, the account used to record the salaries received by the partners is called the drawing account. The drawing account has a debit balance because it reduces the partner's basis in the partnership. It is not an expense account.

When a partner receives his/her salary, the following journal entry is made:

Dr Drawing account - Susan 1,000

Cr Cash 1,000

When you are closing the drawing account at the end of the year (like all other temporary accounts), you must close it to the partner's capital account:

Dr Susan - capital 1,000

Cr Drawing account - Susan 1,000