A correct journal entry for Transfer of the balance of Profit and Loss Account (a credit balance) to Profit and Loss Appropriation Account: is-
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Profit and Loss A/c Dr. To Profit and Loss Appropriation A/c
The Profit and Loss Appropriation Account starts with the net profit of the Profit and Loss Account. A credit balance (net profit) is closed by debiting the account that holds it and crediting the account that receives it:
Profit and Loss A/c Dr.
To Profit and Loss Appropriation A/c
Profit and Loss Account is debited because its credit balance is being closed.
Profit and Loss Appropriation Account is credited because the profit now arrives there for distribution.
The reverse entry (Appropriation A/c Dr. To Profit and Loss A/c) is the one passed for a net loss.
NCERT (2026-27 edition):
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