PROFIT

AND LO

SS

APPROPR

IATI

ON 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 10000. After the accounts for the year ended 31st march 2010

have been prepared, it is discovered that interest @5% 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 A B C D Total Dr Cr Dr Cr Dr Cr Dr Cr

Interest on capital to be credited

Excess profit shared equally and credited (wrongly )

- 150

325

- 250

325

-

400

325

-

500

325

1300

-175 -75 75 175

balance to be adjusted

175 75

-75 - 75 - 175

Statement showing required adjustments:

SOLUTION

JOURNAL

DATE PARTICULARS LF DEBIT CREDIT

2010 april

A’s capital a/cB’s capital a/c To c’s capital a/c To D’s capital

17575

75175

(being the adjustment of interest on capital omitted)