The unfavourable balance of Profit and Loss Account should be:

The correct answer is Subtracted from capital.

Key Points

• The capital should be reduced by the P/L account's negative balance.
• Owner stock in the business is referred to as capital, thus the unfavourable balance of the P&L statement must be subtracted from Capital.
• Owners are responsible for bearing losses that occur like the sharing of profits.

Important Points

Unfavourable balance of P/L A/c will be transferred to capital account and deducted from capital.