Day: April 13, 2020

In order for partners’ capitals to remain fixed, their respective shares of profits must be . . .?

Select ONE answer:

1. debited to their capital accounts.
2. credited to their capital accounts.
3. debited to their current accounts.
4. credited to their current accounts.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 4

1. Not correct – By debiting a partner‘s share of profits to his / her capital account the balance on the account will decline (not remain fixed).
2. Not correct – By crediting a partner‘s share of profits to his / her capital account the balance on the account will increase (not remain fixed).
3. Not correct – By debiting a partner‘s share of profits to his her current account the balance on that account will decline, indicating that the firm owes less to the partner as a result of making a profit!
4. Correct

 

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