A new partner pays goodwill directly and privately to an existing partner, without depositing it in the partnership firm. What entry is made in the firm's books for this payment?
Correct answer: C. No entry is made in the firm's books
- A. Debit Cash and credit Goodwill
- B. Debit Goodwill and credit the existing partner
- C. No entry is made in the firm's books
- D. Debit the new partner's capital and credit Cash
Explanation
A private payment takes place outside the firm's books and does not change firm assets or liabilities. Therefore, the payment itself is not recorded in the partnership accounts.
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About Partnership Accounts
Partnership accounts cover the partnership agreement, capital and current accounts, profit and loss appropriation, salaries, interest on capital, interest on drawings and profit-sharing ratios. They also address changes in partnership, including admission, retirement, goodwill, revaluation, dissolution and the settlement of partners’ balances.
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