Question

What is the journal entry recorded, for the transfer of credit balance of Profit & Loss A/c, known as net profit ?

• A. Profit and Loss A/c...................Debit
  To Capital A/c
• B. Capital A/c...................Debit
  To Profit and Loss A/c
• C. Capital A/c...................Debit
  To Trading A/c
• D. None of the above

Answer 1

The correct option is A Profit and Loss A/c...................Debit

To Capital A/c
Credit balance of profit & loss account is known as net profit.

Any profit is transferred to capital because it is all related to capital value of firm like assets or any income.

Thus, journal entry to transfer net profit to capital is:

$Profit\&Lossa/cDrTocapitala/c$

Capital account is credited because we have to raise the value of capital and profit&loss account is debited because this account has to be vacant.