Division of profits among partners

Division of profits among partners

The net profit as per the profit and loss account of a firm is subject to the adjustment of interest on capital, interest on drawings, etc. These adjustments are made by preparing a profit and loss appropriation account. The resultant profit of the firm being the balance in the profit and loss appropriation account is to be divided among the partners according to their profit sharing ratio. In the absence of profit sharing ratio, profit is divided among the partners equally. The following is the journal entry to be passed in the books for the division of profit among the partners.

Note: If there is a loss, the reverse entry is made.