Question

Match List-I with List-II

List-I	List-II
(A) Salary to partner	(I) Credit side of Partners Capital Account
(B) Interest on partners loan	(II) Debit side of Partners Current Account
(C) Interest on partners drawings	(III) Debit side of Profit and Loss Account
(D) Additional capital introduced	(IV) Credit side of Partners Current Account

Choose the correct answer from the options given below:

• (A) - (I), (B) - (II), (C) - (III), (D) - (IV)
• (A) - (I), (B) - (III), (C) - (II), (D) - (IV)
• (A) - (IV), (B) - (III), (C) - (II), (D) - (I)
• (A) - (III), (B) - (IV), (C) - (I), (D) - (II)

Answer 1

The Correct Option is A

Matching Partner Transactions with Accounting Treatment 

This exercise involves matching common transactions related to partners in a firm with their correct accounting treatment, reinforcing understanding of partnership accounting principles.

Matching Pairs

Here's the breakdown of each matched pair:

• (A) Salary to Partner - (I) Credited to Partner's Capital Account:
  • Explanation: The salary paid to a partner is treated as a return on their investment and services provided to the firm. Therefore, it increases the partner's capital balance, which is reflected by crediting the Partner's Capital Account.
• (B) Interest on Partner's Loan - (III) Debited to Profit and Loss Account:
  • Explanation: Interest paid on a partner's loan is considered an expense for the firm, regardless of whether the lender is a partner or an external party. As an expense, it reduces the firm's profit and is therefore debited to the Profit and Loss Account.
• (C) Interest on Partner's Drawings - (II) Debited to Partner's Current Account:
  • Explanation: Interest charged on a partner's drawings (withdrawals) is income for the firm, as it compensates the firm for the use of its funds. However, it reduces the partner's claim on the firm, so it's debited to the Partner's Current Account.
• (D) Additional Capital Introduced - (IV) Credited to Partner's Current Account:
  • Explanation: When a partner introduces additional capital into the firm, it increases their investment and their claim on the firm's assets. This increase in the partner's equity is recorded by crediting the Partner's Current Account.

Conclusion

The correct matching sequence is:

(A) - (I), (B) - (III), (C) - (II), (D) - (IV)

Key Takeaways

• Understanding the proper accounting treatment for partner transactions is crucial for accurate financial reporting.
• The distinction between the Partner's Capital Account and Current Account is important for tracking long-term investments versus short-term transactions.