Which statement gives the correct accounting principle about a retiring partner's loan account?

Correct answer: Interest is treated as an expense and the loan balance as a liability

Interest payable on a retiring partner’s loan is a charge against profit because it is a cost incurred by the firm before profit is appropriated. The principal outstanding is a liability, while repayment reduces that liability and is not an expense. Thus option C correctly separates interest expense from the loan principal; the other treatments confuse repayment or liability with income distribution.