The correct answer is: C. Debit or Credit balance
A partner’s current account is a record of the partner’s capital contribution to the partnership, as well as their share of the partnership’s profits and losses. The balance of a partner’s current account can be either a debit balance or a credit balance.
A debit balance indicates that the partner owes money to the partnership. This could be because the partner has not yet paid their capital contribution, or because they have withdrawn more money from the partnership than they have earned in profits.
A credit balance indicates that the partnership owes money to the partner. This could be because the partner has earned more profits than they have withdrawn from the partnership, or because they have made a capital contribution that is greater than their share of the partnership’s liabilities.
In some cases, a partner’s current account may have a zero balance. This could be because the partner has neither withdrawn money from the partnership nor earned any profits.
It is important to note that the balance of a partner’s current account is not the same as the partner’s capital account. The capital account is a record of the partner’s original investment in the partnership, as well as any additional investments or withdrawals they have made. The current account, on the other hand, is a record of the partner’s share of the partnership’s profits and losses.
Here is a brief explanation of each option:
- A. Debit balance. A debit balance indicates that the partner owes money to the partnership. This could be because the partner has not yet paid their capital contribution, or because they have withdrawn more money from the partnership than they have earned in profits.
- B. Credit balance. A credit balance indicates that the partnership owes money to the partner. This could be because the partner has earned more profits than they have withdrawn from the partnership, or because they have made a capital contribution that is greater than their share of the partnership’s liabilities.
- C. Debit or Credit balance. The balance of a partner’s current account can be either a debit balance or a credit balance.
- D. Neither debit nor credit balance. In some cases, a partner’s current account may have a zero balance. This could be because the partner has neither withdrawn money from the partnership nor earned any profits.