Choose the correct option from the following regarding sequencing of…

Choose the correct option from the following regarding sequencing of items given below in case of final accounts of partnership firm.

(A) Salary to employee
(B) Partner’s salary
(C) Net profit
(D) Divisible profit
(E) Manager’s Commission

Choose the correct answer from the options given below.

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → (A), (E), (C), (B), (D)

Items payable to outsiders are charges in the Profit and Loss Account; items payable to partners are appropriations in the Profit and Loss Appropriation Account, which begins with the net profit.

(A) Salary to employee — an expense, charged in the Profit and Loss Account first.

(E) Manager’s Commission — also a charge against profit, debited in the Profit and Loss Account.

(C) Net profit — the balance of the Profit and Loss Account after all charges; it opens the Appropriation Account.

(B) Partner’s salary — an appropriation of profit, debited in the Appropriation Account.

(D) Divisible profit — what is left after all appropriations, shared by the partners in their profit sharing ratio.

NCERT (2026-27 edition):
Profit and Loss Appropriation Account – “Profit and Loss Appropriation Account is merely an extension of the Profit and Loss Account of the firm. It shows how the profits are appropriated or distributed among the partners. All adjustments in respect of partner’s salary, partner’s commission, interest on capital, interest on drawings, etc. are made through this account. It starts with the net profit/net loss as per Profit and Loss Account.”

NCERT (2026-27 edition):
Summary – “… The distribution of profits among the partners is shown through a Profit and Loss Appropriation Account, which is merely an extension of the Profit and Loss Account. It is usually debited with interest on capital and salary/commission allowed to the partners, and credited with net profit as per Profit and Loss Account and the interest on drawings. The balance being profit or loss is distributed among the partners in the profit sharing ratio and transferred to their respective capital accounts.”

NCERT (2026-27 edition):
Working Notes

Extract from the NCERT textbook