A correct journal entry for Transfer of the balance of Profit and Loss Account (a credit balance) to Profit and Loss Appropriation Account is-

The Profit and Loss Account shows a credit balance, which represents net profit earned during the period. This profit needs to be transferred to the Profit and Loss Appropriation Account for distribution among partners.

To transfer a credit balance from one account to another:

• The account with credit balance must be debited (to close it)
• The receiving account must be credited

Since the Profit and Loss Account has a credit balance of profit, it needs to be debited to close this balance. The Profit and Loss Appropriation Account will be credited to receive this profit.

Journal Entry:

Particulars	Debit	Credit
Profit and Loss A/c Dr.	✓
$\quad$ To Profit and Loss Appropriation A/c		✓

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This entry achieves two purposes:

• Closes the Profit and Loss Account by debiting it
• Opens the Profit and Loss Appropriation Account with the profit amount, which will then be appropriated (distributed) among partners through interest on capital, salaries, commission, and profit sharing ratio

The correct answer is Option 2.