State BPA Fundamental Accounting Practice Exam

Is drawing closed to the income summary account considered true or false?

1. True

2. False

3. Not applicable

4. Depends on the situation

The correct answer is: False

The statement regarding whether drawing account balances are closed to the income summary account is considered false. In accounting, drawing accounts are separate from the income summary and reflect the withdrawals made by the owner(s) of a business. These withdrawals are typically a reduction of equity rather than an expense that would affect the income summary. When closing entries are made at the end of a period, the income summary account is used to summarize income and expenses, ultimately reflecting net income or net loss. This amount is then transferred to the owner’s capital account or retained earnings. The drawing account, however, is closed directly to the owner’s capital account by transferring its balance, which does not involve the income summary. This process ensures that the income summary is solely concerned with revenue and expenses, keeping the owner's personal transactions distinct from the business's operating results.