What is the purpose of the journal entry: "All Partners’ Capital A/c’s (Individually) Dr. To Profit and Loss A/c"?
Answer & explanation
Correct answer: option 3
The correct answer is option 3- To transfer profit and loss account debit balance to the capital accounts of all partners.
This journal entry is passed to transfer the accumulated losses to all partners in old ratio and this entry is reversed in case of accumulated profits.
Profit & loss debit balance is a loss for the firm. So, given journal entry is passed.