Gemma and Audrey are in partnership. Their capital balances at the end of the accounting period are $200 000 and $150 000 respectively. Gemma decides to make a permanent cash withdrawal from her capital account of $75 000. Assuming the fixed capital balances method (method 2) is used, the accounting entry to record this transaction is:

Question

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The fixed capital balances method (method 2) means that the capital balances of each partner are maintained at a fixed amount, regardless of any withdrawals or additional contributions. Therefore, Gemma's withdrawal of $75,000 would be recorded as a decrease in her capital account and a decrease in the partnership's total capital. The accounting entry would be to debit Gemma's capital account for $75,000 and credit the partnership's bank account for $75,000. Option B correctly reflects this entry.

Gemma and Audrey Are in Partnership