Question

State the treatment of payment of firm's debts and private debt

Answer 1

Answer:

Firm’s Debts:

When a firm owes to an outsider, this debt is called firm’s debt. The firm is basically responsible to pay these debts. At the time of dissolution of the firm these debts are paid first out of the money realised.

Private Debts:

When a partner owes some amount from an outsider this debt is called his private debt. The firm is basically not responsible for these types of debts. Such debts are paid off from the money realised by selling the private property of the partner. If private property of partner exceeds the amount of his private debt, surplus is used to settle the firm’s debts.

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