Partners' Current Account can have either a credit balance or a debit balance depending on the transactions recorded in it.
The current account records:
- Credit side: Share of profit, Interest on capital, Salary, Commission
- Debit side: Drawings, Interest on drawings, Share of loss
When Credit balance exists:
The account shows that the firm owes money to the partner. This is a liability for the firm.
→ Shown on Liabilities side of Balance Sheet
When Debit balance exists:
The account shows that the partner owes money to the firm. This is an asset for the firm.
→ Shown on Assets side of Balance Sheet
This commonly happens when a partner's drawings exceed their share of profits and other credits.
Therefore, Partners' Current Account will either be shown in Assets side or Liabilities side of the Balance Sheet depending on whether it has a debit balance or credit balance respectively.
Option 2 is the correct statement as it accounts for both possible scenarios.