Accountancy Part AAccounting for Partnership

Identify the correct sequence to be followed while preparing final ac…

Identify the correct sequence to be followed while preparing final account of a partnership firm.

(A) Profit and loss Appropriation A/c

(B) Profit and loss A/c

(D) Balance sheet

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → (C), (B), (A), (D)

(C) Trading Account — first. It works out the gross profit.

(B) Profit and Loss Account — second. It starts with the gross profit and works out the net profit.

(A) Profit and Loss Appropriation Account — third. It starts with the net profit and distributes it among the partners (interest on capital, salary, commission, share of profit).

(D) Balance Sheet — last. It is prepared after the partners’ capital or current accounts carry their share of profit, so it shows the final balances.

NCERT (2026-27 edition):
Preparation of final accounts of a partnership firm – “… There is not much difference in the final accounts of a sole proprietary concern and that of a partnership firm except that in case of a partnership firm an additional account called Profit and Loss Appropriation Account is prepared to show distribution of profit and loss among the partners.”

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.”