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If interest due is omitted from the credit of a partner’s loan account, what will be the effect on the final loan balance?

Answer and explanation

Correct answer: Loan balance will be understated

Interest due is added to the total amount payable to the partner and is credited to the partner’s loan account. If this credit is omitted, the amount payable recorded in the account will be lower, so the final loan balance will be understated. Option B shows the opposite effect, while the bank balance is not directly increased by this omission. Exam tip: Interest due to a partner increases the liability and is credited to the partner’s loan account.

Related tags

Partners Loan AccountInterest OmissionRetirement Of PartnerAccounting ErrorsLiability AdjustmentPartner's Loan AccountPartner S Loan AccountReconstitution Retirement Or Death Of A Partner

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