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Subjects
Class 12AccountancyDissolution of a Partnership FirmClosing the BusinessEasy
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If a liability of ₹7,000 is paid, what will be the effect on cash?

Answer and explanation

Correct answer: Decrease by ₹7,000

Paying the liability causes a cash outflow of ₹7,000, so the cash balance decreases by ₹7,000. It cannot decrease by ₹14,000 because the actual payment is only ₹7,000. Exam tip: Treat every cash payment as a reduction in cash.

Related tags

Dissolution Of PartnershipClosing BusinessLiability SettlementCash FlowClosing The BusinessDissolution Of A Partnership FirmAccountancyClass 12 Mcq
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10 more MCQs
  1. 1What is the process of permanently closing a partnership firm and ending its existence called?
  2. 2Which account is prepared at the time of dissolution of a firm to determine the profit or loss arising from the settlement of its assets and external liabilities?
  3. 3What is generally done with the assets of a partnership firm at the time of its dissolution?
  4. 4On dissolution of a partnership firm, from what are the external liabilities generally paid?
  5. 5To which account is the realisation profit transferred?
  6. 6To which account is the realisation loss transferred?
  7. 7What happens to the existence of the firm after dissolution?
  8. 8Dissolution expenses are generally debited to which account?
  9. 9At the time of dissolution, if an asset is sold for ₹10,000, what amount will be credited to the Realisation Account?
  10. 10On dissolution of a firm, to whom is the final cash balance paid after settling outside liabilities and other amounts due?
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