If a partner's capital account shows a credit balance, what does it represent for the firm?

Correct answer: Liability

A credit balance in a partner's capital account indicates the partner's claim on the firm — the firm owes that capital to the partner (or it represents owners' equity). In simple partnership accounting, capital appears on the liabilities side of the balance sheet as a claim against the firm's assets. Option B (Asset) is incorrect because assets normally have debit balances; a credit balance denotes a claim (liability/equity), not an asset. Exam tip: on the balance sheet, capital is shown on the liabilities side — think “credit = claim (liability/equity), debit = asset.”