Page 37 - DEBKVOL-1

Chapter 2 Accounting for Partnership Firms—Fundamentals 2.9
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Illustration 4.
Pass the Journal entries to record the following transactions in the books of the firm of A and
B before distributing the profits earned?
(i) Commission of ` 5,000 payable to B.
(ii) Interest on Capital: A—` 8,000; B—` 5,000.
(iii) Salary payable to A—` 20,000 p.a.
(iv) Transfer to the General Reserve—` 25,000.

Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
(i) Commission A/c ...Dr. 5,000
To B’s Capital A/c 5,000
(Commission payable to B credited to his Capital Account)
Profit and Loss Appropriation A/c ...Dr. 5,000
To Commission A/c 5,000
(Amount of commission payable to B transferred)
Alternatively, one entry may be passed as follows:
Profit and Loss Appropriation A/c ...Dr. 5,000
To B’s Capital A/c 5,000
(Amount of commission payable to B )
(ii) Interest on Capital A/c ...Dr. 13,000
To A’s Capital A/c 8,000
To B’s Capital A/c 5,000
(Interest on Capitals credited to Partners’ Capital Accounts)
Profit and Loss Appropriation A/c ...Dr. 13,000
To Interest on Capital A/c 13,000
(Interest on capitals transferred)
Alternatively, one entry may be passed as follows:
Profit and Loss Appropriation A/c ...Dr. 13,000
To A’s Capital A/c 8,000
To B’s Capital A/c 5,000
(Interest on capital payable to A and B)
(iii) Partner’s Salary A/c ...Dr. 20,000
To A’s Capital A/c 20,000
(Salary payable to A credited to his Capital Account)
Profit and Loss Appropriation A/c ...Dr. 20,000
To Partner’s Salary A/c 20,000
(Salary payable to A transferred)
Alternatively, one entry may be passed as follows:
Profit and Loss Appropriation A/c ...Dr. 20,000
To A’s Capital A/c 20,000
(Salary payable to A credited to his Capital Account)
(iv) Profit and Loss Appropriation A/c ...Dr. 25,000
To General Reserve A/c 25,000
(Amount transferred to General Reserve)

Note: Partners’ Capital Accounts are assumed to be fluctuating.