Question

Normally, the closing entries of a partnership include entries to:

a. Record distribution of cash to the partners.
b. Eliminate the capital accounts and record the distribution of assets to partners to effect the partnership termination and liquidation.
c. Close income and expense accounts to the income summary account; and then close the profits or losses to the drawing account.
d. Close the profits or losses and dividends declared accounts to retained earnings

Answer 1

Closing entries for a partnership involve recording cash distributions to partners, eliminating capital accounts for asset distributions during liquidation, and transferring net income or loss to the partners' drawing accounts. Unlike corporations, partnerships do not transfer profits or losses to retained earnings.

Step-by-step explanation:

The closing entries for a partnership serve a specific purpose to conclude the accounting period. Firstly, they are used to record distribution of cash to the partners, ensuring that each partner receives their share of the remaining cash after the partnership's debts have been paid. Eliminate the capital accounts and record the distribution of assets to partners is another crucial step for the termination and liquidation of the partnership, which involves distributing any remaining non-cash assets.

Furthermore, closing entries are made to close income and expense accounts to the income summary account, where the net income or loss is calculated. Then, these profits or losses are transferred to the partners' drawing accounts, reflecting their share of the earnings or losses. Lastly, in corporations (not partnerships), closing entries would involve closing the profits or losses and any declared dividends to the retained earnings, but this is not applicable for partnerships that do not have retained earnings. Thus, option (d) would not be correct for partnerships.