Question -
Answer -
(a) When a partner’s loan is on the asset side of balance sheet, it means that partner has borrowed some amount from business and needs to pay back the same. In this instance, the loan amount gets transferred to the partners’ capital account. It is shown as:
Partner’s Capital A/c Dr.
To Partner’s Loan A/c
(Loan account of partner transferred to partner capital account)
(b) When a partner’s loan appears on liabilities side of balance sheet, it means that partner has provided loan to the business and the business has to pay back the amount which it has got from the partner. The loan is paid in cash after full filling payment of all external liabilities.
Partner’s Loan A/c Dr.
To Cash/Bank A/c
(Loan taken from partner paid in cash)