We are not quite finished yet, however. Cr Capital Gavin Oz 39,800 When we learn about accounting for companies, the above credit entry will not be to capital, but to a separate account called Retained Profits. Before we construct our financial statements we need to adjust our retained profits for any drawings made. The Drawings account is not an expense account. It represents a distribution of the firm s assets to the owners of the firm.
Drawings are effectively the opposite of capital contributions by owners of non-incorporated firms.
Once the adjusting and closing entries have been completed the preparation of financial statements can commence. The Profit and Loss Statement discloses a firm s profit over the reporting period. All revenues and expenses are listed in this statement, and used to compute the firm s profit. The first items listed on a Profit and Loss Statement are the firm s revenues for the period. The amounts can be obtained directly from the Profit and Loss Summary Account, or your worksheet.