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In the dissolution of a firm, after paying the external liabilities, to whom is the next payment made if any amount is still due?

Answer and explanation

Correct answer: Partners’ loan accounts

On dissolution, the usual order of payment is external liabilities, followed by partners’ loans, and finally partners’ capital. Therefore, partners’ loan accounts are settled after the external liabilities. Partners’ capital accounts are paid only after the loans have been settled. Exam tip: Remember the sequence—external liabilities → partners’ loans → partners’ capital.

Related tags

Partnership DissolutionClosing BusinessOrder Of PaymentPartners LoanPartners CapitalClosing The BusinessDissolution Of A Partnership FirmAccountancy

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