What is the effect of a partner's withdrawal on the capital accounts?
Practice Questions
1 question
Q1
What is the effect of a partner's withdrawal on the capital accounts?
Increase in capital accounts
Decrease in capital accounts
No effect on capital accounts
Transfer to current accounts
When a partner withdraws, it results in a decrease in the capital accounts of the partners.
Questions & Step-by-step Solutions
1 item
Q
Q: What is the effect of a partner's withdrawal on the capital accounts?
Solution: When a partner withdraws, it results in a decrease in the capital accounts of the partners.
Steps: 5
Step 1: Understand that a partner's capital account shows their investment in the business.
Step 2: When a partner decides to withdraw, they take some or all of their investment out of the business.
Step 3: This withdrawal reduces the total amount of money that partner has in their capital account.
Step 4: As a result, the capital account balance for that partner decreases.
Step 5: If the partner is the only one withdrawing, only their capital account is affected. If multiple partners withdraw, their accounts will also decrease.
