Accounting for the incorporation of an unincorporated business that currently exists as either a sole proprietorship or partnership involves:

Question

Quizplus · Accepted Answer

CDWhen an unincorporated business such as a sole proprietorship or partnership incorporates, the owner equity accounts of the prior entity are closed because the ownership structure changes from owners or partners to shareholders. Therefore, the equity structure must reflect this change, leading to the setup of shareholder equity accounts for the corporation (A). The owner equity accounts are typically closed to the retained earnings account of the corporation, reflecting the transfer of the prior entity's equity into the corporation's equity structure (C). Withdrawals by owners or partners in the unincorporated business are analogous to dividends in a corporation, so the withdrawals accounts are closed to the dividends payable accounts, indicating that these amounts are now treated as dividends to be paid to shareholders (D).

Accounting for the Incorporation of an Unincorporated Business That Currently