At the time of dissolution of a partnership firm, what does a debit balance in a partner’s capital account indicate?

Correct answer: Amount due from the partner to the firm, i.e. capital deficiency

A debit balance means that the debit side of the partner’s capital account exceeds the credit side. It generally arises because of accumulated losses, excess drawings or other adjustments and represents a capital deficiency; therefore, on dissolution, the partner has to bring this amount into the firm. In contrast, a credit balance is payable by the firm to the partner. Exam tip: debit balance means amount recoverable from the partner, whereas credit balance means amount payable to the partner.