Choose the correct sequence of financial statements prepared for a pa…

Choose the correct sequence of financial statements prepared for a partnership firm at the end of a financial year.

A. Capital Accounts

B. Profit and Loss A/c

C. Profit and Loss Adjustment A/c

D. Balance Sheet

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → B, C, A, D

Each statement uses the result of the one before it:

B. Profit and Loss A/c — first. It finds the net profit or loss of the year.
C. Profit and Loss Adjustment A/c — second. The net profit is carried to the account that adjusts and divides it among the partners (interest on capital, salary, commission, interest on drawings, then the share of profit).
A. Capital Accounts — third. The partners' capital (or current) accounts are credited or debited with these amounts and then balanced.
D. Balance Sheet — last. It shows the closing balances, including the partners' capital accounts.

Note: It seems that there is a mistake in the original NTA paper, which prints item C as Profit and Loss Adjustment A/c when it should read Profit and Loss Appropriation A/c, the account prepared at the end of every year to divide the profit among the partners (a Profit and Loss Adjustment Account is used only to correct past errors). The order is the same either way, so Option (4) is still the answer.

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

Extract from the NCERT textbook

NCERT (2026-27 edition):
Maintenance of Capital Accounts of Partners – “… Thus under this method, two accounts are maintained for each partner viz., capital account and current account, 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.”