When a firm is dissolved, a partner's loan account represents a liability that the firm owes to the partner. This liability needs to be paid off in cash.
The journal entry for payment of partner's loan is:
Partner's Loan Account Dr.
To Bank Account
The partner's loan is paid directly through the bank account and is not transferred to the Realisation Account. This is because:
- Realisation Account is used only for realizing assets and settling external liabilities
- Partner's loan is an internal liability and has a specific order of payment during dissolution
- It is paid after external liabilities but before settling capital accounts
Order of Payment during Dissolution:
External Liabilities → Partner's Loans → Partner's Capital Accounts
Since the partner's loan is settled by making an actual cash payment, it is transferred to (paid through) the Bank Account.