Chapter # 8 - Partnership - Distribution of Profit or Loss - Principles of Accounting - XII

Oct 29, 2026

Chapter 8 explains how partnership firms distribute net profit or net loss among partners based on their agreed ratios. It covers preparation of an Income Distribution Summary, listing allocations after salaries, commission, bonus, interest on capital, and interest on drawings. It also shows journal entry formats using partners’ current accounts for both profit and loss, with expense and revenue summary as the balancing figure. Illustrations include distribution of net profit, net loss, and required journal entries.

LanguageEnglish

CategoryExam

FormatPDF

Pages12

Reading Time30 min

AccessFree to download

WHAT THE EXAMINER USUALLY ASK?

Income Distribution Summary

General Journal entry for distribution of profit or loss

Partners’ Capital account and Current account

Income Summary account

Multiple Choice Questions (MCQs)

PARTNERSHIP – DISTRIBUTION OF PROFIT OR LOSS

Distribution rules and order of appropriations

Fixed capital: transfer to partners’ current accounts

Entry records for net profit and net loss

Format of Income Distribution Summary

ILLUSTRATION # 1 (Distribution of Net Profit)

ILLUSTRATION # 2 (Distribution of Net Loss)

Practice questions

Question # 1

Chapter \# 8 Partnership – Distribution of Profit or Loss Principles of Accounting – XII [www.a4accounting.weebly.com](www.a4accounting.weebly.com) WHAT THE EXAMINER USUALLY ASK? 􀁸 Income Distribution Summary. 􀁸 General Journal entry for distribution of profit or loss. 􀁸 Partners’ Capital account and Current account. 􀁸 Income Summary account. 􀁸 Multiple Choice Questions (MCQs) . Chapter \# 8 PARTNERSHIP – DISTRIBUTION OF PROFIT OR LOSS Distribution of profit or loss 􀁸 When the partnership earns profit or loss, it is distributed among the partners according to their ratio. 􀁸 If there is no agreement about the ratio of partners, profit or loss will be distributed equally. 􀁸 Profit or loss will be distributed to the partners after the distribution of: o Salaries. o Commission. o Bonus. o Interest on capital. o Interest on drawings. 􀁸 The profit or loss earned by the partnership firm is transferred to the partners’ current account instead of their capital account in case of fixed capital. 􀁸 Income Distribution Summary is prepared for the distribution of profit or loss. Entry to Record Distribution of Net Profit: Expense and revenue summary DR. (with total profit) Partner A’s current account CR. (with partner’s profit) Partner B’s current account CR. (with partner’s profit)(To record the distribution of net profit) Entry to Record Distribution of Net Loss: Partner A’s current account DR. (with partner’s loss) Partner B’s current account DR. (with partner’s loss) Expense and revenue summary CR. (with total loss)(To record the distribution of net loss) FORMAT OF income distribution summary Name of Partnership Income Distribution Summary For the period ended | Particulars | A
(Partner) | B
(Partner) | Total | Remaining Profit or Loss | | --- | --- | --- | --- | --- | | Capital balances | XXX | XXX | XXX | | | Net profit | | | XXX | XXX | | Salary | XXX | XXX | XXX | XXX | | Commission | XXX | XXX | XXX | XXX | | Bonus | XXX | XXX | XXX | XXX | | Interest on capital | XXX | XXX | XXX | XXX | | Distribution of remaining profit | XXX | XXX | XXX | XXX | | Total | XXX | XXX | XXX | --- | ILLUSTRATION \# 1: (Distribution of Net Profit) 1998 Regular & Private – BIEK Munir, Nasir and Wazir are partners in the firm “Siddiqui Brothers”. On 1st January, 1997 their capital balances appeared at Rs.250,000; Rs.150,000 and Rs.100,000 respectively. According to partnership agreement, each partner was entitled to receive interest at 5% per annum at capitals at start and salary of Rs.7,500 per annum. After allowing interest and salary to the partners, the balance offundistributed profits was to be distributed equally among the partners. The income statement for the year ended December 31, 1997 shows a net profit of Rs.137,500. REQUIRED Prepare Income Distribution summary of the firm for the year ended December 31, 1997. Also record the necessary journal entries for the distribution of profit. SOLUTION \# 1: SIDDIQUI BROTHERS INCOME DISTRIBUTION SUMMARY FOR THE PERIOD ENDED 31 DECEMBER 1997 | Capital balances
Net profit
5% interest on capital balances Salary
Distribution of remaining profit
Total | Munir | Nasir | Wazir | Total | Remaining
Profit or
Loss | | --- | --- | --- | --- | --- | --- | | | 250,000 | 150,000 | 100,000 | 500,000 | | | | 12.500
7,500
30,000 | 7,500
7,500
30,000 | 5,000
7,500
30,000 | 137,500 | 137,500
112,500
90,000
--- | | | | | | 25,000
22,500
90,000 | | | | 50,000 | 45,000 | 42,500 | 137,500 | | SIDDIQUI BROTHERS GENERAL JOURNAL FOR THE PERIOD ENDED 31 DECEMBER 1997 | Date | Particulars | P/R | Debit | Credit | | --- | --- | --- | --- | --- | | 1 | Expense and revenue summary
Munir current account
Nasir current account
Wazir current account (To record the distribution of net profit) | | 137,500 | 50,000
45,000
42,500 | ILLUSTRATION \# 2: (Distributi

FAQs

How is profit or loss distributed among partners in a partnership firm?

Profit or loss is distributed among partners according to the ratio stated in the partnership agreement. If no ratio is agreed, profit or loss is distributed equally.

What appropriations must be deducted before distributing the remaining profit or loss?

The remaining amount is distributed after salaries, commission, bonus, interest on capital, and interest on drawings are accounted for.

How are journal entries recorded for distribution of net profit and net loss?

For net profit, partners’ current accounts are credited with their shares and the expense and revenue summary is debited for total profit. For net loss, partners’ current accounts are debited with their shares and the expense and revenue summary is credited for total loss.

Oct 29, 2026

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