In a partnership, explain situations where a loan can occur

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In the event an  existing or previous partner make a loan to the partnership, he or she becomes a creditor to the partnership. Some reasons for such loans being made are:

  • Partnership is short of cash and the existing partners are not willing to contribute further any capital
  • New partnership is not able to repay a retiring/outgoing partner on the total balance owed to him ( his current and capital account balance.) This amount is then transferred to a loan account.

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