Which of the following statements is correct with regards to closing the accounts of a partnership?
A) Partners are owners; therefore partner's salaries must be treated as drawings.
B) Partnership profit is credited to each partner's capital account according to the profit sharing agreement.
C) Partnership accounts use a retained earnings account instead of a profit or loss summary account.
D) A partnership loss for the period is carried forward and is not transferred to the partner's capital accounts.

Question

Quizplus · Accepted Answer

Partnership profit is credited to each partner's capital account according to the profit sharing agreement. This means that the profit is divided among the partners according to the terms of the partnership agreement, and each partner's capital account is increased by their share of the profit. Option A is incorrect because partner's salaries can be treated as an expense and deducted from the partnership's profits, whereas drawings are withdrawals of profits by partners. Option C is incorrect because a profit or loss summary account is used to close partnership accounts. Option D is incorrect because a partnership loss is usually proportionally allocated among the partners and deducted from their capital accounts.

Which of the Following Statements Is Correct with Regards to Closing