Accumulated losses are transferred to Capital account in Profit sharing ratio.

Explanation:
- Accumulated losses refer to the losses incurred by a business over a period of time, resulting in a negative balance in the profit and loss account.
- These losses need to be accounted for and adjusted in the financial statements of the business.
- One way to address accumulated losses is to transfer them to the Capital account of the partners or shareholders.
- The Capital account represents the ownership interest in the business and is used to track the contributions made by the partners or shareholders and the profits or losses allocated to them.
- The transfer of accumulated losses to the Capital account ensures that the negative balance is reflected in the capital balances of the partners or shareholders.
- Transfer of accumulated losses to the Capital account is done in the Profit sharing ratio, which is the ratio in which profits or losses are shared among the partners or shareholders.
- The Profit sharing ratio determines the proportion in which the partners or shareholders are entitled to the profits or losses of the business.
- By transferring accumulated losses to the Capital account in the Profit sharing ratio, the negative balance is allocated among the partners or shareholders based on their profit sharing ratios.
- This ensures that the impact of the accumulated losses is distributed among the partners or shareholders in proportion to their profit sharing ratios, reflecting their respective ownership interests in the business.

Example:
- Let's say a partnership firm has accumulated losses of $10,000.
- The firm has two partners, A and B, with a profit sharing ratio of 3:2.
- To transfer the accumulated losses to the Capital account, the losses will be distributed among the partners in the same ratio.
- Partner A will bear 3/5th (3/5 * $10,000 = $6,000) of the accumulated losses, and Partner B will bear 2/5th (2/5 * $10,000 = $4,000) of the accumulated losses.
- These amounts will be debited to the respective Capital accounts of the partners, reducing their capital balances by the amount of accumulated losses.
- By transferring the accumulated losses in the Profit sharing ratio, the negative balance is appropriately allocated among the partners based on their profit sharing ratios.