The correct order of preparation of accounts in case of partnership i…

The correct order of preparation of accounts in case of partnership is :

(A) Trading Account
(B) Balance Sheet
(C) Profit and Loss Account
(D) Profit and Loss Appropriation Account
(E) Partners' Capital Account

Choose the correct answer from the options given below :

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → (A), (C), (D), (E), (B)

Each account starts from the result of the one before it, and the Balance Sheet comes last.

(A) Trading Account — first. It gives the gross profit.

(C) Profit and Loss Account — second. It starts from gross profit and gives the net profit.

(D) Profit and Loss Appropriation Account — third. It is an extension of the Profit and Loss Account and distributes the net profit among the partners.

(E) Partners' Capital Account — fourth. Each partner's share of profit, interest and salary is credited here.

(B) Balance Sheet — last. It shows the closing capitals along with assets and liabilities.

NCERT (2026-27 edition):
Distribution of Profit among Partners – “… You know that in the case of sole partnership the profit or loss, as ascertained by the profit and loss account is transferred to the capital account of the proprietor. In case of partnership, however, certain adjustments such as interest on drawings, interest on capital, salary to partners, and commission to partners are required to be made. For this purpose, it is customary to prepare a Profit and Loss Appropriation Account of the firm and ascertain the final figure of profit and loss to be distributed among the partners, in their profit sharing ratio.”

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.”

NCERT (2026-27 edition):
Profit and Loss Appropriation Account

Extract from the NCERT textbook

NCERT (2026-27 edition):
Maintenance of Capital Accounts of Partners – “… While the partners’ capital accounts shall always appear on the liabilities side in the balance sheet, the partners’ current account’s balance shall be shown on the liabilities side, if they have credit balance and on the assets side, if they have debit balance.”