In a capital account, realisation profit and general reserve are both recorded on which side?

Correct answer: Credit side

The direct answer is option A, the credit side. During dissolution, realisation profit is transferred to the partners’ capital accounts in the profit-sharing ratio. This profit increases each partner’s capital, so it is credited. A general reserve is also an accumulated profit belonging to the partners; distributing it increases their capital, so it is credited as well. Option A is correct, and both amounts are divided in the agreed profit-sharing ratio. Option B, debit side, would reduce capital and is opposite to the effect of receiving profit or reserve. Option C, only in memorandum, is wrong because these amounts must be posted to the actual capital accounts. Option D, nowhere, is wrong because every distribution requires an accounting entry. A useful check is: amounts that increase a partner’s capital go on the credit side; amounts withdrawn or charged to the partner go on the debit side.