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) Harry will debit the drawing account for $24,500 and credit the capital account for $24,500.
C) 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 of $24,500, meaning that Harry withdrew $24,500 in excess of the available funds in his business. This amount needs to be returned to the business by Harry, so the capital account needs to be debited (decreased) by $24,500, and the drawing account needs to be credited (decreased) by $24,500.

As for determining net income or retained earnings, we would need more information such as revenue and expense figures. Therefore, options A and D cannot be determined with the given information. Option B is incorrect as it suggests a transfer of funds from the capital account to the drawing account, which is not appropriate. Thus, option C is the correct answer.

At the End of the Accounting Period, but Before Closing