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Subjects
Class 12AccountancyDissolution of a Partnership FirmClosing the BusinessEasy
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During the dissolution of the firm, what will be the effect on the cash balance when a liability of ₹5,000 is paid?

Answer and explanation

Correct answer: Decrease by ₹5,000

When the liability is paid, ₹5,000 cash leaves the firm, so the cash balance decreases by ₹5,000. The liability is also settled. It cannot decrease by ₹10,000 because the actual payment is only ₹5,000. Exam tip: A cash payment is recorded by crediting the Cash Account.

Related tags

Dissolution Of PartnershipClosing BusinessCash BalanceLiability SettlementAccounting BasicsClosing The BusinessDissolution Of A Partnership FirmAccountancy
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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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