When a partner withdraws from the partnership for a settlement that is more than his or her capital balance,the difference between the exiting partner's capital and the settlement amount goes to increase the capital balances of the remaining partners.

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When a partner withdraws for a settlement more than their capital balance, the excess amount is typically considered a loss to the partnership and is absorbed by the remaining partners, decreasing their capital balances.

When a Partner Withdraws from the Partnership for a Settlement