Target Exam

CUET

Subject

-- Accountancy Part A

Chapter

Reconstitution of Partnership Firm: Retirement and Death

Question:

While doing adjustment of partners capital, for the amount of capital to be brought in by the partner, the following entry will be passed:

Options:

Bills payable A/c Dr.
      To Partners' Capital A/c

Partners' Capital A/c Dr.
       To Cash / Bank A/c

Partners' Capital A/c Dr.
      To Bills payable A/c

Cash/ Bank A/c Dr.
     To Partners' Capital A/c

Correct Answer:

Cash/ Bank A/c Dr.
     To Partners' Capital A/c

Explanation:

The correct answer is option 4- 
Cash/ Bank A/c Dr.
     To Partners' Capital A/c.

When partners are required to bring in additional capital (e.g., to adjust capital accounts in a new profit-sharing ratio or after revaluation), they bring cash into the firm. For that the journal Entry is as follows-
Cash / Bank A/c       Dr.
     To Partners' Capital A/c

Cash/Bank A/c is debited because money is coming into the business. Partners' Capital A/c is credited because the partner’s capital is increasing.