Partners' current accounts are transferred to respective Partners' ______ Accounts.
Partners' current accounts are transferred to respective Partners' ______ Accounts.
Solution
At the time of dissolution of a partnership firm, all accounts must be closed. The Partners' Current Accounts maintain a record of all transactions with partners during the year (like salary, commission, interest on capital, drawings, interest on drawings, etc.).
The balance in the Current Account (whether debit or credit) represents the final amount due to or from the partner. This balance is transferred to the respective Partners' Capital Accounts.
The journal entry for transfer depends on the nature of balance:
If Current Account shows a credit balance:
Partners' Current Account Dr.
To Partners' Capital Account
If Current Account shows a debit balance:
Partners' Capital Account Dr.
To Partners' Current Account
After this transfer, the Capital Account shows the complete position of each partner, which is then finally settled through Bank Account. This is why current accounts are transferred to Capital Accounts and not to Realisation, Current (itself), or Bank Accounts.
Correct Answer: Option 1 - Capital
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