What is the purpose of the below journal entry?
"Reserves A/c Dr.
To All Partners’ Capital A/c’s (Individually)"
Answer & explanation
Correct answer: option 1
The correct answer is option 1- To transfer accumulated profits to the capital accounts of all partners.
If there are accumulated losses and profits on the retirement or death of a partner then it will be distributed between all partners in their old ratio. In case of loss partners account are debited whereas in case of profit partner's account are credited. Reserves are the accumulated profits. These reserves distribution will make the capital accounts of partners with an increase amount.