Aries and Eros start a partnership firm with capital contributions of $40,000 and $60,000, respectively. In course of the year, Aries withdraws $5,000 from the business in order to meet his personal expenses. Which of the following is the correct journal entry to close the relevant Withdrawals account at the end of the year?
C)No entry

Question

Quizplus · Accepted Answer

When a partner withdraws funds from the business for personal use, a journal entry is required to close the Withdrawals account at the end of the year. In this case, Aries withdrew $5,000, which needs to be deducted from their capital account. The correct journal entry is to debit Aries' capital account for $5,000 and credit the Withdrawals account for $5,000. This entry ensures that the total capital contributed by Aries remains at $40,000, and the total capital contributed by Eros remains at $60,000. Option B is the correct journal entry that reflects this transaction.

Aries and Eros Start a Partnership Firm with Capital Contributions