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What does a credit balance in a partner’s loan account indicate?

Answer and explanation

Correct answer: Firm’s outstanding liability to the partner

A credit balance in a partner’s loan account means that the firm has to pay that amount to the partner. Hence, it is a liability of the firm, not an asset, drawing, or sales income. Exam tip: a credit balance in the partner’s loan account represents an amount payable by the firm and receivable by the partner.

Related tags

Partners-LoanCredit-BalanceFirm-LiabilityPartner-RetirementAccounting-BasicsPartner's Loan AccountPartner S Loan AccountReconstitution Retirement Or Death Of A Partner

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