PROFIT AND LOSS APPROPRIATION ACCOUNT

DEBIT SIDE OF THE PROFIT AND LOSS APPROPRIATION ACCOUNT TO SALARIES OF PARTNERS TO COMMISSION TO PARTNERS TO INTEREST ON PARTNERS’ CPAITALS TO PARTNERS’ CAPITAL ACCOUNT/CURRENT A/C (IF PROFIT)

CREDIT SIDE OF THE PROFIT AND LOSS APPROPRIATION ACCOUNT BY PROFIT AND LOSS ACCOUNT (PROFIT TRANSFERRED FROM P&L ACCOUNT BY INTEREST ON DRAWINGS BY PARTNERS’ CAPITAL (IF THERE IS LOSS)

PAST ADJUTMENTS Sometimes after the accounts of the partnership firm have been closed after the financial year, it is discovered that there have been some errors or omissions in the accounts. In such cases, instead of altering the old accounts and the signed balance sheet an adjustment entry for such errors or omissions is made at the beginning of the next year.

WHEN THE PAST ADJUSTMENT IS MADE? Interest on Capitals agreed may have been omitted Salary agreed to the partner may have been omitted Commission agreed to the partner may have been omitted Interest on Drawing may have been omitted Profit sharing ratio may have been changed with effect from some past date. When Profit and Losses have been distributed among the partners in a wrong proportion.

OMISSION OF INTEREST ON CAPITAL 1. A,B,C and D are partners. Their capital accounts on 1st april, 2009 were: A- Rs 3000, B- Rs 5000, C-Rs 8000, D- Rs After the accounts for the year ended 31 st march 2010 have been prepared, it is discovered that p.a. as provided for the partnership agreement has not been credited to the partner’s capital accounts before distributing profits. Instead of altering the signed balance sheet, it is decided to make an adjusting entry in the beginning of the next year. Give the necessary journal entry.

PARTICULARS ABCD Total DrCrDrCrDrCrDrCr Interest on capital to be credited Excess profit shared equally and credited (wrongly ) balance to be adjusted Statement showing required adjustments :

SOLUTION JOURNAL DATE PARTICULARSLFDEBITCREDIT 2010 april A’s capital a/c B’s capital a/c To c’s capital a/c To D’s capital (being the adjustment of interest on capital omitted)