Question

What is profit and loss Adjustment Account

Answer 1

The profit and loss adjustment account is prepared because of the following two reasons:

1. to record omitted items and rectify errors if any after the preparation of profit and loss account and balance sheet.if any errors or omissions is noticed then these errors or omissions are adjusted by opening profit and loss adjustment account in the subsequent Accounting period without alerting old profit and loss account.

2

to distribute profit or loss between the partners sometimes beside adjusting the items and rectifying errors, this account is also used for distribution of profit or loss among the partners in this situation this account acts as substituted for Profit and Loss appropriation account.

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