Question

When realisation expenses are paid by a partner on behalf of the firm, what is the journal entry made?
 

• A.

  

• B.

  

• C.

  

• D.

  

Hint:

Think of the partner paying as providing a temporary loan to the firm for these expenses, hence their capital account is credited.

Answer 1

The Correct Option is A

Step 1: Understanding the Transaction.
Upon partnership dissolution, expenses arise from asset realization and liability settlement. When a partner personally covers these firm expenses, the firm incurs a debt to that partner.

Step 2: Identifying the Accounts and Their Treatment.
The affected accounts are:

• Realisation Account: Records asset disposal and liability settlement transactions during dissolution. Realisation expenses are a cost of this process, thus debiting the Realisation Account.
• Partner's Capital Account: The partner's payment signifies an increase in the firm's debt to them. This is recorded by crediting the Partner's Capital Account.

Step 3: Formulating the Journal Entry.
Applying debit and credit principles, the journal entry is: 



Step 4: Conclusion.
Consequently, when a partner pays realisation expenses for the firm, the journal entry debits the Realisation Account and credits the Partner's Capital Account, aligning with option (a).