Podcast
Questions and Answers
When a partnership borrows money from one of its partners, how is this transaction recorded?
When a partnership borrows money from one of its partners, how is this transaction recorded?
- Debit Capital account, Credit Bank account
- Debit Loan from Partner X account, Credit Bank account
- Debit Bank account, Credit Capital account
- Debit Bank account, Credit Loan from Partner X account (correct)
How does the interest paid on a loan from a partner affect the partnership's financial statements?
How does the interest paid on a loan from a partner affect the partnership's financial statements?
- Interest expense increases profits and is recorded as a credit on the income statement.
- Interest expense increases profits and is recorded as a debit on the income statement.
- Interest expense decreases profits and is recorded as a debit on the income statement. (correct)
- Interest expense decreases profits and is recorded as a credit on the income statement.
Where would the 'Loan from Partner X' account appear on the Statement of Financial Position?
Where would the 'Loan from Partner X' account appear on the Statement of Financial Position?
- Non-Current Assets
- Non-Current Liabilities (correct)
- Current Liabilities
- Current Assets
Why is it important to distinguish between loans from partners and capital contributions?
Why is it important to distinguish between loans from partners and capital contributions?
When interest on a loan from a partner is due but not yet paid, how is this recorded in the partnership's books?
When interest on a loan from a partner is due but not yet paid, how is this recorded in the partnership's books?
Flashcards
Partnership Loan
Partnership Loan
A loan taken from a partner for business needs.
Loan Repayment
Loan Repayment
Paying back the borrowed amount to the partner.
Interest on Loan
Interest on Loan
The cost of borrowing money, treated as a business expense.
Non-Current Liability
Non-Current Liability
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Income Statement Transfer
Income Statement Transfer
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Study Notes
Partnership Loans
- Partnerships can borrow from a partner if needed, treated like any other loan.
- Loan interest is a business expense, not affected by profit/loss.
- Loan repayment is at an agreed time.
Loan Origination
- Loan from partner: Debit bank account, Credit loan from partner X account.
Loan Repayment
- Repaying partner: Debit loan from partner X account, Credit bank account.
- Position on financial statements: Loan as non-current liability.
Interest on Loans
- Paid interest: Debit interest on loan account, Credit bank account.
- Unpaid interest:
- Interest on loan due but not paid: Debit interest on loan account, Credit partner X current account.
- Interest transferred: Interest on loan account is transferred to the debit of the income statement.
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