Question

State whether the following statement are True or False.

Capital account always shows credit balance.

Options

• True

• False

Answer 1

False.

Explanation: It is not necessary that a partner’s capital account will always show a positive balance (i.e. credit balance). The capital account of a partner might show a debit balance when a partner withdraws more than his or her share of profits from the firm. Hence, the given statement is incorrect.