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Claims of the creditors

There are some issues that partners may have on liquidation. This process usually happens due to (1) the accomplishment of the purpose for which the partnership was organized, (2) the period covered by the partnership contract has terminated, (3) the firm has been bankrupt, (4) there has been a mutual agreement between the partners to close the business and (5) the court has a decree to close the business.

Upon liquidation, issues arrives: (1) determination of the profit or loss from the beginning of the current accounting period to the date of liquidation and the distribution of such profit or loss, (2) correction of accounting errors in prior periods like overstatement or understatement of inventories, excessive depreciation charges, and failure to provide adequately for doubtful accounts, (3) conversion of non-cash assets to cash (4) make distributions of cash to creditors (5) make distributions of cash to partners after satisfying the claims of the creditors.

In order to minimize these issues, if the partners already feel the need for liquidating the business, they should correct the errors in prior periods in order to arrive at the correct capital account of each partner. Each partner must also prepare to be liable up to the extent of their personal assets in case the partnership’s assets are not enough to satisfy the creditors. In our recent global economic status, it is not just easy to put up a business.

We must also take into consideration the competitiveness of the business and how it will survive on this changing world. One of the partnership’s advantages is that the partners share profit and losses depending on the contract they are into. All businesses, not just the partnership, must create some ideas on how to stay tough and be known above all other same line of businesses.

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