U3, AOS 2 - Transferring Drawings Flashcards
What is the purpose of transferring drawings to the capital ledger?
To accurately reflect the owner’s equity and ensure proper accounting of withdrawals.
True or False: Drawings increase the capital balance.
False
What is the first step in the process of transferring drawings?
Identify the total amount of drawings made during the reporting period.
Fill in the blank: At the end of the reporting period, drawings are __________ from the capital account.
deducted
What financial statement reflects the capital balance after transferring drawings?
The balance sheet
Multiple Choice: Which of the following accounts is affected by the transfer of drawings? A) Capital Account B) Revenue Account C) Expense Account
A) Capital Account
What happens to the capital balance if drawings exceed the capital contributions?
The capital balance may become negative.
True or False: Drawings should be recorded as an expense in the income statement.
False
What is the impact of drawings on the owner’s equity?
Drawings reduce the owner’s equity.
Short Answer: How often should drawings be transferred to the capital ledger?
At the end of each reporting period.
What is the typical accounting treatment for drawings in the books?
Drawings are recorded as a reduction in the capital account.
Fill in the blank: The capital ledger is used to track __________ and __________.
capital contributions; drawings
Multiple Choice: Which of the following best describes drawings? A) An investment in the business B) A withdrawal of funds C) A source of revenue
B) A withdrawal of funds
True or False: Drawings can be made in cash or non-cash forms.
True
What is a common practice for documenting drawings?
Maintaining a detailed record of all withdrawals made by the owner.
Drawings can be made up of…
Cash and/or inventory
