What is the accounting entry to close the sole proprietorship drawing account?
The journal entry to close the drawing or withdrawal account of a sole proprietorship includes a debit to the owner's capital account and a credit to the drawing account.
To illustrate the closing entry, let's assume that at the end of the accounting year the account Eve Jones, Drawing has a debit balance of $24,000. This balance is the result of Eve withdrawing $2,000 per month from her sole proprietorship for her personal use. (Each monthly withdrawal was recorded with a debit to Eve Jones, Drawing and a credit to Cash.) The journal entry to close the drawing account requires a credit to Eve Jones, Drawing for $24,000. The other part of the entry is a debit of $24,000 to Eve Jones, Capital.
The drawing or withdrawal account is a temporary owner equity account, requiring it to be closed at the end of the accounting year. The drawing account is also a contra account to owner's equity, because the drawing account's debit balance is contrary to the normal, expected balance for an owner equity account.
Also note that the drawing account is closed directly to the capital account. The drawing account is not an expense and as a result it does not get closed to the Income Summary account.