During winding up, what is the correct order of paying creditors?

• A. Inside creditors first, then outside creditors, then capital contributions, then surplus to partners.
• B. Capital contributions first
• C. Surplus to partners first
• D. Outside creditors, then inside creditors, then capital contributions, then surplus to partners

Answer: (D)

In winding up a partnership, external obligations are settled before internal ones, and original investments are returned before sharing any remaining assets as profit. So the first to be paid are outside creditors, then inside creditors (like partners who lent money to the firm), followed by returning the capital contributions to the partners, and only after all that is any surplus distributed to the partners themselves. This is why the option reflecting outside creditors first, then inside creditors, then capital contributions, then surplus to partners is the correct order.