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

question 58

Multiple Choice

With the variable capital balances method (method 1) of accounting for partnership equity, the general journal entry to record interest on capital is:

• A) DR Profit distribution account; CR Partner's capital accounts.
• B) DR Profit or loss summary account; CR Partner's capital accounts.
• C) DR Profit distribution account; CR Partner's retained earnings accounts.
• D) DR Profit or loss summary account; CR Partner's retained earnings accounts.

---

Definitions:

Closing Entries

Journal entries made at the end of an accounting period to transfer temporary account balances to permanent accounts.

Prepaid Insurance

An asset account that represents the amount of insurance premium payments made in advance for coverage extending beyond the current accounting period.

Adjusting Entry

Journal entries made in accounting records at the end of an accounting period to allocate income and expenditures to the period in which they actually occurred.

Insurance Expense

The cost incurred by a company to insure its assets, operations, or liabilities over a certain period.