When a firm is dissolved, all assets and liabilities are settled and distributed among the partners. It is important to note that partners may have loan accounts with the firm, which must be settled before the final distribution of assets. This means that the firm must pay back the partner's loan before distributing the remaining assets among the partners.



To record the payment of the partner's loan on dissolution of a firm, the following journal entry is made:

Debit: Partner Loan Account
Credit: Cash/Bank Account

The debit to the partner loan account represents the settlement of the loan owed to the partner, while the credit to the cash/bank account represents the payment made to the partner.



Suppose a partnership firm is dissolved and one of the partners has a loan account of $10,000 with the firm. The firm pays back the loan to the partner in cash. The journal entry to record this transaction is:

Debit: Partner Loan Account - $10,000
Credit: Cash Account - $10,000

This entry shows that the firm has settled the partner's loan account and paid the partner in cash.



The payment of a partner's loan on dissolution of a firm is an important step in settling all liabilities before distributing the remaining assets among the partners. The journal entry to record this transaction involves debiting the partner loan account and crediting the cash/bank account.

Partners loan a/c Dr.
to bank a/c