Arrange the following in correct sequence in regard to Partnership firm.

A. Net Profit transferred to P & L Appropriation account
B. Preparation of Partner's Capital account
C. Division of Profits among partners
D. Interest on Partners Capital accounts
E. Interest on Partner's Loan account

Choose the correct answer from the options given below.

E, A, D, C, B

The correct answer is option 3- E, A, D, C, B.

E. Interest on Partner's Loan account- Interest on partner's loan is charged to profit to loss account to calculate the net profit of the firm.

A. Net Profit transferred to P & L Appropriation account- After charging interest on partner's loan to the debit side of profit and loss account, the last figure comes out as the net profit. This net profit is transferred to p & l app a/c.

D. Interest on Partners Capital accounts- Profit and Loss Appropriation Account is merely an extension of the Profit and Loss Account of the firm. 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. So, after transferring net profit to profit & loss appropriation A/c, interest on capital is provided to partners.

C. Division of Profits among partners- After adjusting all the items (in respect of partner’s salary, partner’s commission, interest on capital, interest on drawings, etc.) in the profit & loss appropriation A/c, the remaining profit is divisible profit. This divisible profit is transferred between partners in their profit-sharing ratio.

B. Preparation of Partner's Capital account- After distributing profit, capital accounts are made. All transactions relating to partners of the firm are recorded in the books of the firm through their capital accounts. This includes the amount of money brought in as capital, withdrawal of capital, share of profit, interest on capital, interest on drawings, partner’s salary, commission to partners, etc. There are two methods by which the capital accounts of partners can be maintained. These are: (i) fixed capital method, and (ii) fluctuating capital method.