— Kishore V, SME and ACW at Edumarz
(a) When the loan amount is reflected on the assets side of the balance sheet, it means that the company has given the partner a loan. In that instance, the loan amount will be transferred to the capital account of the concerned partner at the moment of dissolution. The following entry in the journal will be passed:
Particulars | L.F | Debit | Credit |
Partner’s Capital A/c Dr To Partner’s Loan A/c (The loan amount is moved to the capital account of the partner.) |
(b) When the amount of a loan shows in the liabilities section of the balance sheet, it means that the firm has received a loan from the respective partner or partners. In this situation, the partner’s debt will be paid off when all external liabilities have been paid off. In this case, the following accounting entry will be passed.
Particulars | L.F | Debit | Credit |
Partner’s Loan A/c Dr To Cash or Bank A/c (The partner’s loan is paid in cash.) |