If, after adding interest to a retiring partner's loan account, the bank payment equals only the principal, what will the balance represent?

Correct answer: Interest payable remains outstanding

The governing concept is the separate treatment of principal and accrued interest during settlement of a loan. Suppose the retiring partner’s loan account contains both the principal amount and interest that has already been credited as payable. If the bank payment equals only the principal, that principal portion is cleared, but the interest component has not been paid. The remaining credit balance therefore represents interest payable, so option A is correct. Option B would apply only if the payment covered the interest while leaving part of the principal unpaid. Option C is wrong because an unpaid amount owed by the firm cannot be bank income. Option D is also wrong because outstanding interest is an expense and liability, not a capital profit. The unpaid interest remains in the loan account until it is settled or otherwise adjusted.