What does it mean when a partner's current account shows a debit balance of $2 500 at the year end?
Question 1 Report
What does it mean when a partner's current account shows a debit balance of $2 500 at the year end?
Answer Details
The correct answer is that the partner has withdrawn more than their entitlement from the firm.
A debit balance on a partner's current account means the total of items debited (mainly drawings and interest on drawings) exceeds the total of items credited (salary, interest on capital, share of profit, and any opening credit balance). In effect, the partner owes the firm money because withdrawals have exceeded the amounts earned.
A credit balance would mean the firm owes the partner, not the other way around. The current account does not "hold" money on behalf of the partner. The balance does not represent a single year's profit figure.
Download The App On Google Playstore
Everything you need to excel in your exams
