How are Accumulated Profits and Losses Adjusted?

A few times, the Balance Sheet of an enterprise may depict accrued gains in the pattern of a general reserve on reserve fund and on accrued losses in the pattern of gain and loss a/c debit balance. The retiring/dead partner is authorised to his or her share in the accrued profits and is also responsible to share the accrued losses. These accrued gains or losses perfectly fits the partners and should be transferred to the capital a/c of the partners in their old profit sharing ratio.

Following journal entries that are recorded is given below :

In case of accumulated profits the accounting treatment is crediting the profit to old partner’s capital account

Reserves A/c  Dr.

Profit & Loss A/c  Dr.

To Old Partner’s Capital A/c (Individually)

In case of accumulated loss, the accounting treatment is to debit the capital account of old partner’s.

Old Partner’s Capital A/c Dr. (Individually)

To Profit and Loss A/c (Loss)

Adjustments of Reserves and Accumulated Profits or Losses

  • In a similar way, old partners’ current or capital a/c should be debited in the old ratio (OR) if any accrued loss emerges in the assets side of the balance sheet (B/S)
  • All the partners (comprising the new partner) may ascertain to depict the reserves in the books at its authentic or consented value

The above mentioned is the concept that is explained in detail about the Adjustment of Accumulated Profits and Losses for the Class 12 Commerce students. To know more, stay tuned to BYJU’S.

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