At the end of the accounting period,but before closing entries are made,Harry,the proprietor of Harry's Bar and Grill,has a debit balance of $24,500 in his drawing account and a credit balance of $72,300 in his capital account.Which of the following statements is true?
A)Harry's net income was $47,800.
B)In closing,Harry will debit the drawing account for $24,500 and credit the capital account for $24,500.
C)In closing,Harry will debit the capital account for $24,500 and credit the drawing account for $24,500.
D)Harry's retained earnings account was $47,800.

Question

Quizplus · Accepted Answer

The drawing account has a debit balance, which means that Harry withdrew more money from the business than he put in. This decreases his capital, which is why his capital account has a credit balance. In order to close out his drawing account, he will need to debit his capital account and credit his drawing account for the balance of $24,500. Therefore, option C is the correct choice. Option A cannot be determined from the information given. Option B is incorrect because the drawing account will be credited, not debited. Option D is also incorrect because the information provided does not allow for the calculation of retained earnings.

At the End of the Accounting Period,but Before Closing Entries