Posting Closing Entries and Preparing a Post-Closing Trial Balance, Page 13

Closing Withdrawals to Capitals

This is the fourth and last closing entry. In this entry, the balance of the Withdrawals account is transferred to the Capital account. The balance of the Withdrawals account appears in the Balance Sheet section of the worksheet.

The closing entry is 

• Debit the Capital account for the balance of the withdrawals account. 
• Credit the withdrawals account for the same amount.

Consider the following example:
Withdrawals during the period $1,000.

Step 1: Analysis 

1. Withdrawals by the owner affects the Owners Capital and Owner’s Withdrawals account. 
2. Withdrawals is a temporary Owner’s Equity account. Capital is an Owner’s Equity account. 
3. Withdrawals is decreased by $1,000 and Capital is decreased by $1,000.

Step 2: Debit – Credit Rule

• Decrease in Owner’s Capital account is recorded as a debit. Debit Owner’s Capital for $1,000.
• Decrease in Owner’s Withdrawal account is recorded as credit. Credit withdrawals for $1,000.

 Step 3: Make a Journal Entry