Question

multiple choice question

miss hap, the bookkeeper for the sole proprietorship buy & large, forgot to close the drawing account at the end of the accounting period. as a result,

net income will be unaffected
net income will be overstated
net income will be understated

Explanation:

Analyze the nature of the Drawing account

The Drawing account in a sole proprietorship is a temporary equity account used to record owner withdrawals of cash or other assets for personal use. It is a contra-equity account, not an expense account.

Determine the impact on Net Income

Because owner drawings are distributions of equity rather than business expenses, they are not reported on the Income Statement. Consequently, whether the Drawing account is closed or left unclosed at the end of the accounting period has no impact on the calculation of revenues, expenses, or net income.

Evaluate the options

Since the Drawing account does not affect the income statement, forgetting to close it at the end of the period will leave net income completely unaffected.

Answer:

• net income will be unaffected (Correct answer)
• net income will be overstated
• net income will be understated