The balances in the owner's drawing account are transferred to the owner's capital account at year-end.

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Multiple Choice

The balances in the owner's drawing account are transferred to the owner's capital account at year-end.

Explanation:
Drawings reduce the owner’s equity, not an expense. At year-end, those withdrawals are closed into the owner’s capital to reflect the decrease in the owner’s stake. The closing entry debits the owner’s capital for the amount of the drawings and credits the drawings account, bringing the drawings balance to zero and reducing capital accordingly. For example, if drawings are 3,000, the entry is Debit Capital 3,000; Credit Drawings 3,000. This shows that the balances in the drawing account are indeed transferred to the capital account at year-end.

Drawings reduce the owner’s equity, not an expense. At year-end, those withdrawals are closed into the owner’s capital to reflect the decrease in the owner’s stake. The closing entry debits the owner’s capital for the amount of the drawings and credits the drawings account, bringing the drawings balance to zero and reducing capital accordingly. For example, if drawings are 3,000, the entry is Debit Capital 3,000; Credit Drawings 3,000. This shows that the balances in the drawing account are indeed transferred to the capital account at year-end.

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