At the time of admission of a new partner, if the old partners’ capital accounts are credited while closing the debit balance of the Profit and Loss Account, what accounting error does this indicate?

Correct answer: Accumulated loss was treated as profit

A debit balance in the Profit and Loss Account represents an accumulated loss. This loss should be debited to the old partners’ capital or current accounts in their old profit-sharing ratio, not credited. Therefore, crediting the old partners means that the accumulated loss has been treated as a profit. Option B describes the opposite situation, since accumulated profit is normally credited. Exam tip: remember that a debit balance represents a loss, while a credit balance represents a profit.