Question

How are accumulated profits and losses dealt with when a partner retires from a firm?

Answer 1

Upon a partner's retirement, all accumulated profits (like General Reserve, credit balance in the Profit & Loss Account, etc.) should be credited to the Capital Accounts of all partners, including the retiring partner. Similarly, any accumulated losses (such as the debit balance in the Profit & Loss Account) should be debited to the Capital Accounts of all partners, including the retiring one, based on their old profit-sharing ratio. This is because these profits and losses were generated while the retiring partner was still part of the firm.