12. Equity

Question 1

How to close drawings account end of the financial year?

What the double entries?

Answer 1

Close to “capital” account.

Dr Capital total drawings
Cr Drawings total drawings

Question 2

Which two transactions that must be done to the capital account at the end of the financial year? What are the double entries?

Answer 2

1.Transfer total drawings to capital account
Dr Capital total drawings
Cr Drawings total drawings

2. Transfer profit or loss to the capital account.
   Dr Income summary profit amt
   Cr Capital profit amt

Or

Dr Capital loss amt
Cr Income summary loss amt

Question 3

What causes the change in capital?

Answer 3

1. Capital contribution
2. Drawings by owner
3. Profit for the year or loss for the year