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Class 12AccountancyReconstitution - Retirement or Death of a PartnerPartner's Loan AccountExpert
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To which account is the interest payable on a retiring partner’s loan debited?

Answer and explanation

Correct answer: Profit and Loss Account

Interest on a retiring partner’s loan is an expense and a charge against the firm’s profits. Therefore, the Profit and Loss Account is debited, while the retiring partner’s Loan Account is credited. The Profit and Loss Appropriation Account is not used because it records the distribution of profit, not business expenses. Exam tip: remember the entry—Interest on Partner’s Loan A/c Dr. to Retiring Partner’s Loan A/c.

Related tags

Partner LoanRetirement Of PartnerInterest On LoanProfit And Loss AccountPartnership AccountsPartner's Loan AccountPartner S Loan AccountReconstitution Retirement Or Death Of A Partner
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10 more MCQs
  1. 1When the full amount due to a retiring partner is not paid immediately, the unpaid balance is transferred to which account?
  2. 2What is the normal nature of a retiring partner's loan account?
  3. 3Interest on the retiring partner's loan account is given to whom?
  4. 4If the agreement does not mention an interest rate, what rate is generally applied on the retiring partner's loan?
  5. 5Interest on a retiring partner's loan account is debited to which account?
  6. 6In the journal entry for interest on a retiring partner's loan account, which account is credited?
  7. 7When the loan amount is paid to the retiring partner, which account is debited?
  8. 8When the loan is paid to the retiring partner, which account is credited?
  9. 9On which side does the opening balance of a retiring partner's loan account appear?
  10. 10If the amount due to the retiring partner is fully paid in cash, will a loan account be opened?
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