The deceased partner's share of goodwill is credited to which account?

Correct answer: Deceased partner's capital account

The direct answer is option A: the deceased partner’s capital account. Goodwill is the value of a firm’s good name, customer trust and extra earning ability. When a partner dies, the partner is entitled to his or her share of the goodwill earned up to the date of death. This entitlement is recorded on the credit side of the deceased partner’s capital account, because the amount increases what the firm owes to that partner’s estate. The exact reasoning is: first determine the deceased partner’s share of goodwill; next calculate the necessary adjustment among the continuing partners according to the applicable profit-sharing or gaining ratio; finally credit the deceased partner’s capital account with that share. Option A is correct because the capital account records the amount payable to the deceased partner. Option B is wrong because cash is used only when money is actually paid or received; the goodwill adjustment itself is not necessarily a cash transaction. Option C is wrong because purchases account records goods bought for resale, not goodwill. Option D is wrong because a bank loan account records borrowed money and repayment, not a partner’s goodwill entitlement. A useful exam cue is: on a partner’s death, goodwill due to that partner is credited to the deceased partner’s capital account, while the partners who gain are adjusted through their accounts.