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Subjects
Class 12AccountancyDissolution of a Partnership FirmClosing the BusinessMedium
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At the time of dissolution of a partnership firm, how is a bank overdraft classified?

Answer and explanation

Correct answer: External liability

A bank overdraft is an amount borrowed by the firm from the bank and payable to it. Therefore, it is an external liability and is settled as part of the firm’s external liabilities on dissolution. It is not a partner’s capital account because the bank is an outside party, not a partner. Exam tip: Amounts payable to banks, creditors and other third parties are classified as external liabilities.

Related tags

Partnership DissolutionBank OverdraftExternal LiabilitiesRealisation AccountSettlement Of LiabilitiesClosing 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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