When accumulated profits are distributed among the old partners on the admission of a new partner, why are their capital accounts credited?

Correct answer: Because the balances of their capital accounts increase

Accumulated profits are earnings of earlier periods and belong to the old partners. Each old partner’s share, distributed in the old profit-sharing ratio, is credited to that partner’s capital account, increasing its balance. Option B is incorrect because receiving a profit share increases, rather than decreases, capital. Exam tip: On distributing accumulated profits, credit the old partners’ capital or current accounts.