With the variable capital balances method (method 1) of accounting for partnership equity, the general journal entry to record interest on capital is:
A) debit profit distribution account; credit partner's capital accounts.
B) debit profit distribution account; credit partner's retained earnings accounts.
C) debit profit or loss summary account; credit partner's capital accounts.
D) debit profit or loss summary account; credit partner's retained earnings accounts.

Question

Quizplus · Accepted Answer

Interest on capital is considered a distribution of profits to partners based on their capital balances. Therefore, the profit distribution account is debited, and the partner's capital accounts are credited to reflect this allocation.

With the Variable Capital Balances Method (Method 1) of Accounting