Creditors Paid More- Partnership Adjustments Part 15

Introduction

In this article we will learn about the adjustment for 'Creditors Paid more' in partnership accounts.

Please note that the adjustment will be done in a similar manner whether you are doing admission, retirement, death or change in profit ratio question. You need not understand the adjustments separately for these chapters.

What are creditors

Before understanding the adjustment, let's first understand what are creditors and how are these created in accounts.

• Goods purchased on credit.
  • Purchases account A/c Dr..
    • To Sundry Creditors A/c
    • (Here purchases is an expense and sundry creditors is a liability)

When a firm purchases goods on credit then entry is passed in creditors account. Purchasing goods on credit means that the payment for goods is not made immediately. And the payment will be made sometimes in future.

A liability is created in the books of accounts of the firm to make the payment in future.

Creditors means someone to whom we have to make payment sometimes in future, for goods or services purchased today. These are shown on the liabilities side of the balance sheet.

Creditors Paid more adjustment given in the question

Now that we have understood the meaning of creditors, lets come to how such adjustments are written in the question.

• Creditors are to be paid Rs 2000 more
• Creditors of Rs 50000 as per the balance sheet will be paid Rs 2000 more
• It was discovered that creditors are to be paid Rs 2000 more

Instead of creditors question may write Bills Payable or Trade Payables. Whatever the language of the question the adjustment will be done in the same manner

Understand Creditors Paid more adjustment

Next we come to understanding the adjustment. Since the firm has to pay more money now so the liabilities of the firm are increasing.Since the firm has to pay more money so there is a loss on revaluation

Here you should understand that if you have to give more money to someone now, then you stand to loose.

Creditors Paid more Journal Entry

• Revaluation A/c Dr.. Rs 2000
  • To Sundry Creditors A/c Rs 2000

Since there is a loss on revaluation so revaluation account gets debited.

The liabilities of the firm are increasing. Increase in liabilities is credited. So Sundry Creditors account gets credited.

Creditors Paid More in Revaluation Account

Next we will discuss, how this will be shown in revaluation account. Since there is a loss, so it will be shown on debit side of revaluation account. On the debit side we will write, To Sundry Creditors Account.

There will be no entry on the credit side of revaluation account

Creditors Paid more in Partner Capital A/c

There will be no impact in partner capital account as we have not passed any entry in partner capital account

Creditors Paid more in Balance Sheet

Next we will discuss how this adjustment will be shown in the balance sheet. In the balance sheet the value of the creditors will be increased by two thousand rupees.

There will be no entry on the assets side of balance sheet

Finally

Here is the summary of the whole adjustment.

That's all for this adjustment. Please go through below links for more partnership accounts adjustments on reconstitution.

Partnership Accounts Index