Liquidation of a Partnership

P4 Prepare entries for partnership liquidation.

When a partnership is liquidated, its business ends and four concluding steps are required.

1. Record the sale of noncash assets for cash and any gain or loss from their liquidation.
2. Allocate any gain or loss from liquidation of the assets in step 1 to the partners using their income-and-loss-sharing ratio.
3. Pay or settle all partner liabilities.
4. Distribute any remaining cash to partners based on their capital balances.

Partnership Liquidation  
Dissolution of a partnership by (1) selling noncash assets and allocating any gain or loss according to partners’ income-and-loss ratio, (2) paying liabilities, and (3) distributing any remaining cash according to partners’ capital balances. usually falls into one of two cases, as described in this section.