Jemma and Sally are in partnership. Their capital balances at the end of the accounting period are $200 000 and $150 000 respectively. Jemma decides to make a permanent cash withdrawal from her capital account of $50 000. If it is assumed that they use the variable capital balances method (method 1), which of the following is the accounting entry torecord this transaction?

Question

Quizplus · Accepted Answer

When using the variable capital balances method, each partner's capital account is adjusted based on any additional investments or withdrawals they make during the accounting period. Therefore, the accounting entry to record Jemma's permanent cash withdrawal of $50,000 would be to debit Jemma's capital account (reducing it by $50,000) and credit the bank account (reflecting the cash withdrawal). Option C reflects this entry. Option A and B are not correct because they reference profit distributions, which are not relevant in this transaction. Option D is not correct because it references retained earnings, which are not affected by Jemma's withdrawal from her capital account.

Jemma and Sally Are in Partnership