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Subjects
Class 12AccountancyDissolution of a Partnership FirmClosing the BusinessMedium
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For what primary purpose is the Cash Account prepared at the time of dissolution of a firm?

Answer and explanation

Correct answer: To record all final receipts and payments

At dissolution, the Cash Account records cash received from the sale of assets and collection from debtors, along with final payments made to settle liabilities and expenses. It therefore shows the cash balance available at the end of the dissolution process. Profit or loss on dissolution is determined through the Realisation Account, not the Cash Account. Exam tip: associate the Cash Account with receipts and payments, and the Realisation Account with profit or loss on realisation.

Related tags

Partnership DissolutionCash AccountRealisation AccountFinal PaymentsAccountancy Class 12Closing 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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