It Is Possible for a Partner's Capital Account to Have

question 145

Multiple Choice

It is possible for a partner's capital account to have a negative balance.This is known as a:

• A) capital deficiency
• B) capital requirement
• C) capital recovery
• D) capital efficiency

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Definitions:

Financial Statements

Formal records of the financial activities and position of a business, person, or other entity, typically including a balance sheet, income statement, and cash flow statement.

Financial Leverage

The use of borrowed funds to finance the acquisition of assets, with the expectation that the income or capital gains from the assets will exceed the cost of borrowing.

Cash Ratio

A liquidity metric that measures a company's ability to pay off short-term liabilities with its cash and cash equivalents.

Debt/Equity Ratio

An index reflecting financial leverage through a company's total debts divided by the equity of its shareholders.