Definition

Capital deficiency & No capital deficiency

Capital deficiency refers to a debit balance in a partner’s capital account after allocation after allocation of gain or loss.

No capital deficiency

All partners have credit balance after allocation of gain or loss.

When a partnership is liquidated, all partners may have credit balances in their capital accounts. This situation is called no capital deficiency. Or, one or more partners may have a debit balance in the capital account. This situation is termed a capital deficiency.

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