Question

Distinguish between firm's debts and private debts.

Answer 1

Difference between firm's debts and private debts:

1. On the basis of meaning:

(a) Firm's debts are debts owed by the firm to outsiders.

(b) Private debts are debts owed by the partners to the outsiders.

2. On the basis of liability:

(a) All the partners of the firm are liable jointly to pay off the Firm's debts.

(b) Only the concerned partner, who owes the debt, is liable to pay off the Private debts.

3. On the basis of application of property:

(a) Firm's debts will be paid off first using the firm's property. However, they will be given the last priority when using private property of the partners.

(b) Private debts will be paid off last using the firm's property but will be given first priority when using the private property of the partners.