>> August 12, 2008
When two or more partner decides to change their capital according to their profit and loss ratio , then it is necessary to make capital adjustment in the form of cash .
I explain it with an example
Suppose one partner A who invested Rs. 100000 and other partner B invested Rs 200000 . If they decides to divide their capital in their profit sharing ratio and suppose their profit and loss sharing ratio is 1:1 then we calculate total capital first that is Rs.300000 and if we divide into ½ and ½ , it will be 150000 and150000 to A and B so A will invest more 50000 Rupees and B will withdraw Rs . 50000 because his old capital excess Rs.50000 from his new capital .
Then the journal entry will pass in the books of account
Cash account Debit
A partner’s capital account Credit
B partner’s capital account Debit
Cash Account Credit
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