At the end of the accounting period the drawing account is closed to the capital account of the partner.
When two or more individuals engage in an enterprise as co-owners, the organization is known as a partnership.
This form of organization is popular among personal service enterprises, as well as in the legal and public accounting professions.
In the United States a partnership generally deducts guaranteed payments on line 10 of IRS Form 1065 as business expenses.
They are also listed on IRS Schedules K and K-1 of the partnership return.
The important features of and accounting procedures for partnerships are discussed and illustrated below.
Because ownership rights in a partnership are divided among two or more partners, separate capital and drawing accounts are maintained for each partner.If a partner invested cash in a partnership, the Cash account of the partnership is debited, and the partner's capital account is credited for the invested amount.If a partner invested an asset other than cash, an asset account is debited, and the partner's capital account is credited for the market value of the asset.When the partner makes a cash withdrawal of moneys he received as an allowance, it is treated as a withdrawal, or drawing.As a result, Drawing account increased by 0, and the Cash account of the partnership is reduced by the same account.If expenses exceed revenues of the period, the excess is a net loss of the partnership for the period.