Process of Dissolution> Partner's Capital Account

A. Opening Capital Accounts: No Entry

B. Transfer of Current Account Balances (under Fixed Capital Method)

1. If there's a debit balance in Current Account:

Concerned Partner’s Capital A/c     Dr.

       To Concerned Partner’s Current A/c

(Being debit balance in current account transferred to capital account)

2. If there's a credit balance in Current Account:

Concerned Partner’s Current A/c     Dr. 

      To Concerned Partner’s Capital A/c

(Being a credit balance in current account transferred to capital account)

C. Transfer of Reserves and Profit & Loss Balances

1. For Credit Balances (Profits, Reserves):

Profit & Loss A/c (Cr. Balance)     Dr.  

Reserve A/c                         Dr. 

       To Partners’ Capital A/cs

(Being credit balances transferred to partners’ capital accounts in the profit-sharing ratio)

2. For Debit Balances (Accumulated Losses, Fictitious Assets):

Partners’ Capital A/cs              Dr.

      To Profit & Loss A/c (Dr. Balance)

      To Deferred Revenue Expenditure A/c

(Being debit balances/losses transferred to partners’ capital accounts in profit-sharing ratio)

D. Loan Given to a Partner

Partner’s Capital A/c               Dr.

        To Loan to Partner A/c

(Being partner’s loan transferred to his capital account)

E. Transfer of Profit or Loss on Realisation

1. If there is a Profit on Realisation:

Realisation A/c                     Dr.

        To Partners’ Capital A/cs

(Being profit on realisation transferred to partners’ capital accounts)

2. If there is a Loss on Realisation:

Partners’ Capital A/cs              Dr. 

       To Realisation A/c

(Being loss on realisation transferred to partners’ capital accounts)

F. Final Settlement with Partners:

1. Partner brings cash for the deficiency in capital (debit balance):

Cash/Bank A/c                       Dr. 

       To Partners’ Capital A/cs

(Being cash brought in by partner for deficiency in capital)

2. Payment made to partners (credit balance):

Partners’ Capital A/cs              Dr.

       To Cash/Bank A/c 

(Being final payment made to partner for balance in capital account)