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When interest is added to a partner’s loan account at the end of the year, what happens to the amount payable according to the account?

Answer and explanation

Correct answer: Increases

Interest payable on the partner’s loan is credited to the loan account at year end. Therefore, the amount payable includes both the original loan and the accrued interest, so the balance increases. It becomes zero only when the entire amount is repaid; adding interest alone cannot make it zero. Exam tip: Interest credited to a partner’s loan account increases the firm’s liability.

Related tags

Partner Loan AccountInterest On LoanRetirement Of PartnerPartnership AccountsPartner's Loan AccountPartner S Loan AccountReconstitution Retirement Or Death Of A PartnerAccountancy

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