Which account is opened by a partnership firm in case of any error or omission of the transaction is found after the preparation of final accounts?

P & L Adjustment account

The correct answer is option 2- P & L Adjustment account.

P & L Adjustment account is opened by a partnership firm in case of any error or omission of the transaction is found after the preparation of final accounts.

Sometimes a few omissions or errors in the recording of transactions or the preparation of summary statements are found after the final accounts have been prepared and the profits distributed among the partners. The omission may be in respect of interest on capitals, interest on drawings, interest on partners’ loan, partner’s salary, partner’s commission or outstanding expenses. There may also be some changes in the provisions of partnership deed or system of accounting having impact with retrospective effect. All these acts of omission and commission need adjustments for correction of their impact. Instead of altering old accounts, necessary adjustments can be made either;
(a) through ‘Profit and Loss Adjustment Account’, or
(b) directly in the capital accounts of the concerned partners.