PAST ADJUSTMENTS WITH MULTIPLE JOURNAL ENTRIES(SEPARATE JOURNAL ENTRIES) PARTNERSHIP FUNDAMENTALS.PARTNERSHIP ACCOUNTING..

 

When Adjustment entries are passed instead of one adjustment Entry.

In this situation, Analytical table to determine the net effect of all the adjustments is not prepared instead journal entries are passed for each error or omission by debiting or crediting the Profit and Loss Adjustment Account. After passing the entries for adjustment of errors and omissions, Profit and Loss Adjustment Account is closed by debiting or crediting (as the situation is) with the corresponding credit or debit to the partner’s Current accounts, if Fixed Capital Account Method is followed or Partner’s Capital Accounts , if Fluctuating Capital Account Method is followed.

ACCOUNTING ENTRIES

1.      ADJUSTMENT ENTRIES FOR THE ITEMS TO BE CREDITED TO THE PARTNER’S CAPITAL/CURRENT ACCOUNTS.

Profit & loss Adjustment a/c    Dr.

       To partner’s capital/current a/c

(Adjustment made for previously omitted, now recorded)

 

2.      ADJUSTMENT ENTRIES FOR THE ITEMS WHICH ARE TO BE DEBITED TO THE PARTNER’S CAPITAL/CURRENT ACCOUNTS.

Partner’s capital/current a/c     Dr.

      To Profit & loss Adjustment a/c

3.      For net profit/loss due to above adjustments.

 

For profit:

 

Profit and Loss Adjustment a/c

       To Partner’s Capital/Current a/c

(Profit on adjustment credited to partner’s capital/current a/c)

 

For loss:

 

Partner’s capital/current a/c

     To Profit & loss Adjustment a/c

(Loss on adjustment transferred to partner’s capital/current a/c)

 

Illustration

 

P, Q and R are partners in a firm. Their Capital Accounts stood at Rs.3,00,000 and 1,50,000 and Rs. 1,50,000 respectively on 1st April, 2020.

As per the provisions of the deed:

1.      R was to be allowed a remuneration of 36,000 per annum.

2.      Interest on capitals @5% p.a. was to be provided.

3.      Profits were to be distributed in the ratio of 2:2:1.

Ignoring the above items, Net Profit of Rs. 1,80,000 for the year ended 31st march 2021 was distributed among the three partners equally.

Pass the journal Entries to rectify the above errors.

 

Journal

 

P’s capital A/c         Dr.  60,000

Q’s capital A/c        Dr.  60,000

R’s capital A/c        Dr.   60,000

   To profit & loss Adjustment A/c        1,80,000

( share of profit wrongly credited to partners, now reversed)

 

 Profit and Loss Adjustment A/c       Dr.  36,000

       To R’s capital a/c                                                   36,000

(Remuneration credited to R’s capital a/c)

 

Profit and Loss Adjustment a/c        Dr.    30,000

       To P’s capital a/c                                                     15,000

       To Q’s capital a/c                                                       7,500

       To R’s capital a/c                                                        7,500

( Interest on capitals @ 5% p.a. credited to capitals a/cs)

 

Profit and Loss Adjustment a/c     Dr.   1,14,000

   To P’s capital a/c                                                        45,600

   To Q’s capital a/c                                                        45,600

   To R’s capital a/c                                                         22,800

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