Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Accounting for Partnership

Question:

What is the correct journal entry for the omission of interest on capital through profit and loss adjustment A/c?

Options:

Profit and loss Adjustment A/c   Dr.
       To Interest on capital A/c
(Omission of interest is rectified)

Profit and loss Adjustment A/c   Dr.
       To Interest on capital A/c
       To partner's Capital A/c
(Omission of interest is rectified)

Profit and loss Adjustment A/c   Dr.
       To partner's Capital A/c
(Omission of interest is rectified)

Partner's Capital A/c Dr.
       To Interest on capital A/c
       To Profit and loss Adjustment A/c
(Omission of interest is rectified)

Correct Answer:

Profit and loss Adjustment A/c   Dr.
       To partner's Capital A/c
(Omission of interest is rectified)

Explanation:

Sometimes, after the preparation of final accounts and the distribution of profits among the partners, certain errors or omissions in recording transactions or preparing summary statements may be discovered. These errors or omissions can include missing interest on capitals, interest on drawings, interest on partners' loans, partner's salary, partner's commission, outstanding expenses, or changes in partnership deed provisions or accounting systems with retrospective effects. To rectify the impact of these errors or omissions, necessary adjustments can be made either through the "Profit and Loss Adjustment Account" or by directly adjusting the capital accounts of the relevant partners.
Entry for the omission of interest on capital is-
Profit and Loss Adjustment A/c Dr.
    To Partner's capital A/c
(Interest on capital provided that is previously omitted)