Final answer:
The statement about adding a loan receivable from a partner to their capital account balance during liquidation proceedings in a limited liability partnership is false. In accounting, a loan receivable is an asset and separate from the partner's capital account, which reflects equity.
Step-by-step explanation:
The statement that a loan receivable from a partner is added to the partner's capital account balance in the preparation of a cash distribution program to be used by the liquidator of a limited liability partnership is false. In the context of a partnership liquidation, a loan made by the partnership to a partner stands as an asset to the partnership and is separate from the partner's capital account, which represents their equity in the partnership. The partner's capital account is affected by their share of profits, losses, and any additional contributions or withdrawals they might make, not by the loan receivable.
A limited liability partnership offers protection to partners by limiting their liability to their investment in the company, safeguarding personal assets such as home and personal bank accounts in case of business failure. This is an important distinction because it underscores the separation between business and personal finances within the structure of a limited liability partnership.
In terms of accounting, the T-account is a tool that separates a firm's assets from its liabilities and net worth. The assets include any loans receivable, such as those owed by partners, which would appear on the left side of the T-account. On the right, we have liabilities and the partners' capital accounts (representative of their equity and net worth in the partnership). For a partnership facing liquidation, the T-account assists in clarifying financial positions before cash distributions are made.