Question

When a partnership is liquidated, the journal entry to pay the claims of creditors would include a debit to

A. Cash and a credit to each individual creditor.
B. each individual creditor and a credit to Cash.
C. each individual partner’s capital account.
D. each individual partner’s capital account and a credit to Cash.

Answer 1

When a partnership is liquidated, the journal entry to pay the claims of creditors would include a debit to:

B.) each individual creditor and a credit to cash.

When you liquidate a partnership, liabilities must be paid off before partner's investments can be returned to them. In this way, all creditors will be satisfied even if the partner's capital experienced a loss.