Capital, profit and drawings
Profit adds to the owner's capital and drawings take from it. Work out closing capital and post the entries for drawings.
In this room: 3 tasks, 10 questions
- How capital moves in a year4 questions
- Drawings in the books3 questions
- Closing off at the year end3 questions
Capital is what the business owes its owner. It changes over the year for three reasons.
- Capital introduced: the owner pays in more of their own money
- Profit for the year: it belongs to the owner, so it adds to capital
- Drawings: money or goods the owner takes out, which reduce capital
| £ | |
|---|---|
| Capital at 1 April | 11,000.00 |
| Add profit for the year | 14,000.00 |
| Less drawings | (10,000.00) |
| Capital at 31 March | ? |
A loss does the opposite of a profit: it reduces capital.
Answer the questions below
3 more questions follow in this task.
Drawings are not an expense. They never appear in the statement of profit or loss.
Cash taken by the owner is a debit to Drawings and a credit to Bank.
Goods taken for the owner's own use are a debit to Drawings and a credit to Purchases, at cost. The goods were never sold, so they come out of purchases.
Answer the questions below
2 more questions follow in this task.
At the year end the Drawings account is cleared to the Capital account. The profit for the year is credited to the Capital account.
Marlow Cycles' drawings for the year total £10,000.
Answer the questions below
2 more questions follow in this task.