Question

Which of the following statements is true concerning the accounting for a partnership going through liquidation?

a. Gains and losses are reported directly as increases and decreases in the appropriate capital account.
b. A separate income statement is created to measure only the profit or loss generated during liquidation.
c. Because gains and losses rarely occur during liquidation, no special accounting treatment is warranted.
d. Within a liquidation, all gains and losses are divided equally among the partners.

Answer 1

Answer: Option A

Step-by-step explanation: A partnership is a structured agreement to administer and run a business and distribute its profits between several parties. In such a structure the owner and the firm are not considered as separate entities and the owners are considered to be personally liable for any debts of the firm.

Thus, in the event of liquidation, any amount accrued to or by the firm will be directly recorded in the capital account of the partners so that the appropriate amount of liabilities of a partner could be ascertained.