After paying external liabilities and partners’ loans, on what basis is the remaining cash distributed among the partners on dissolution?

Correct answer: According to the final amounts due in capital accounts

On dissolution, after settling external liabilities, realization expenses and partners’ loans, the balance cash is paid to partners according to the final amounts due in their capital accounts. The profit-sharing ratio or the original capital ratio is not automatically used because realization results, profits or losses and other adjustments may change the final capital balances. Exam tip: remember the order of settlement—external liabilities, partners’ loans and then partners’ capital.