If the Fixed Capital Balances Method (Method 2) Is Used

question 55

Multiple Choice

If the fixed capital balances method (method 2) is used to account for partnership equity, both the profit or loss and the partner's drawings are closed to the:

• A) profit or loss summary account.
• B) profit distribution account.
• C) partners' retained earnings accounts.
• D) partners' capital accounts.

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Definitions:

Variable Expense

A cost that varies with the level of output or sales, such as raw materials or sales commissions.

Fixed Selling and Administrative Expense

Costs that do not change with the level of production or sales, such as salaries of executive personnel and advertising expenses.

Selling and Administrative Expense Budget

A financial plan outlining the projected expenses for selling activities and general administrative functions of a business.

Variable Expense

Costs that vary directly with the level of output or sales, including materials and labor costs.