Arrange the following in correct sequence in regard to Partnership fi…

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.

Answer & explanation

Correct answer: option 3

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

Interest on a partner’s loan is a charge against profit, not an appropriation, so it is debited in the Profit and Loss Account before the net profit is found. The appropriations follow in the Profit and Loss Appropriation Account.

E. Interest on Partner’s Loan account – charged to the Profit and Loss Account, payable even if there is a loss.
A. Net Profit transferred to P & L Appropriation account – the appropriation account starts with this net profit.
D. Interest on Partners Capital accounts – an appropriation of profit, made before the remaining profit is shared.
C. Division of Profits among partners – the balance left is divided in the profit sharing ratio.
B. Preparation of Partner’s Capital account – each partner’s interest on capital and share of profit are then credited to the capital accounts.

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. 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.”

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

Choose the correct answer from the options given below.

Answer & explanation

Correct answer: option 3

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

E. Interest on Partner’s Loan account – charged to the Profit and Loss Account, payable even if there is a loss.
A. Net Profit transferred to P & L Appropriation account – the appropriation account starts with this net profit.
D. Interest on Partners Capital accounts – an appropriation of profit, made before the remaining profit is shared.
C. Division of Profits among partners – the balance left is divided in the profit sharing ratio.
B. Preparation of Partner’s Capital account – each partner’s interest on capital and share of profit are then credited to the capital accounts.