When a partner withdraws excess capital from the business, it results in:
Decrease in Partner's Capital - This is recorded by debiting the Partner's Capital Account (as capital is a liability/owner's equity, decrease is shown on debit side)
Outflow of Cash/Bank - This is recorded by crediting the Cash/Bank Account (as asset decreases)
Journal Entry:
Partner's Capital A/c ... Dr.
To Cash/Bank A/c
Analysis of other options:
Option 2 represents the opposite situation - when a partner brings in additional capital into the business, Cash/Bank is debited and Partner's Capital is credited.
Options 3 & 4 involve Drawings Account and Profit & Loss Account. While Drawings Account is used for regular withdrawals by partners, the term "excess capital" specifically refers to a capital adjustment. The direct entry for capital withdrawal is made through the Partner's Capital Account itself, not through Drawings or P&L accounts.
Correct Answer: Option 1