Book-Keeping and Accountancy · Ch 6 — Dissolution of Partnership Firm
Closing the Partners' Capital Accounts and Bank Account
Closing the Partners' Capital Accounts and Bank Account
After the Realisation Account has been prepared and its profit or loss transferred, two accounts remain to be closed to bring the dissolution to completion — the Partners' Capital Accounts and the Bank (or Cash) Account.
Partners' Capital Accounts. Each partner's Capital Account is adjusted for:
- its opening balance (brought forward from the Balance Sheet);
- their share of profit or loss on realisation (credited if profit, debited if loss);
- any asset taken over by that partner (debited, per the treatment above);
- any liability discharged, or realisation expenses paid, by that partner (credited, per the treatment above); and
- any drawings or other adjustments already outstanding.
Once all of this is posted, each capital account shows a final balance — usually a credit balance, meaning the firm owes that amount to the partner, which is then paid out of Bank. Occasionally a partner's account may show a debit balance (the partner owes the firm), in which case that partner must bring in cash to clear it. Note carefully that any partner's loan account is settled separately, directly from the Bank Account, before the capital accounts are touched at all — this is exactly the Section 48(b) order studied earlier (outside debts, then partners' loans, then capital). …
The closing payment made from the Bank Account to each partner (if their capital account shows a credit balance) or received from each partner (if a debit balance), which brings both the capital acc …
Because every receipt and payment of the dissolution passes through it, a correctly prepared Bank Account's two sides must total exactly the same figure — a built-in arithmetic check on the Realis …