What is the correct journal entry for the distribution of profits among partners?
Practice Questions
1 question
Q1
What is the correct journal entry for the distribution of profits among partners?
Debit Profit and Loss Account, Credit Partner's Capital Accounts
Debit Partner's Capital Accounts, Credit Profit and Loss Account
Debit Partner's Capital Accounts, Credit Cash
Debit Cash, Credit Partner's Capital Accounts
The distribution of profits is recorded by debiting the profit and loss account and crediting the partners' capital accounts.
Questions & Step-by-step Solutions
1 item
Q
Q: What is the correct journal entry for the distribution of profits among partners?
Solution: The distribution of profits is recorded by debiting the profit and loss account and crediting the partners' capital accounts.
Steps: 6
Step 1: Identify the total profit that needs to be distributed among the partners.
Step 2: Determine how much profit each partner will receive based on their agreement (e.g., equal distribution or based on their capital contribution).
Step 3: Open your accounting software or ledger where you record journal entries.
Step 4: Create a journal entry to record the distribution of profits.
Step 5: In the journal entry, debit the Profit and Loss Account for the total amount of profit being distributed. This reduces the profit available in the account.
Step 6: Credit each partner's Capital Account with their respective share of the profit. This increases their capital balance in the accounts.
