Capital, Withdrawals, and Sole Proprietorship Equity
What this domain tests
Sole-proprietorship equity questions test 資本金, 引出金, and the closing of net income or loss. Grade 3 expects you to keep owner withdrawals out of the income statement and to close them directly against capital.
Core rules
- 資本金 is the owner's equity. It increases with additional investment and net income; it decreases with withdrawals and net loss.
- 引出金 is a temporary contra-equity account, not an expense. Record cash withdrawals as 引出金 / 現金.
- At closing, close 引出金 to 資本金: 資本金 / 引出金.
- Close net income to capital: 損益 / 資本金. Close a net loss: 資本金 / 損益.
- Additional investment: 現金 / 資本金.
- The income statement reports business profit only; personal withdrawals never appear there.
Worked example
Beginning capital is ¥1,000,000. The owner withdraws ¥100,000 cash during the year, and the business earns ¥300,000 net income. Withdrawal: 引出金 100,000 / 現金 100,000. Closing net income: 損益 300,000 / 資本金 300,000. Closing drawings: 資本金 100,000 / 引出金 100,000. Ending capital: 1,000,000 + 300,000 − 100,000 = ¥1,200,000. The ¥100,000 is not a business expense, so it does not reduce profit; it reduces the owner's equity claim.
Traps
- Including 引出金 in 販売費及び一般管理費.
- Closing 引出金 to 損益 instead of 資本金.
- Debiting 資本金 for a net income instead of crediting it.
- Recording the owner's personal expenses as business expenses.
- Using 繰越利益剰余金 for a sole proprietorship; Grade 3 uses 資本金.