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Class 12AccountancyDissolution of a Partnership FirmClosing the BusinessHard
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On dissolution of a partnership firm, what does transferring liabilities to the Realisation Account represent?

Answer and explanation

Correct answer: Bringing liabilities into the settlement process

At dissolution, the firm’s liabilities are transferred to the credit side of the Realisation Account so that their settlement can be recorded through this account. This transfer only brings the liabilities into the settlement process; it does not represent distribution of profit, an increase in partners’ capital, or collection of cash from debtors. Exam tip: Assets are transferred to the debit side and liabilities to the credit side of the Realisation Account.

Related tags

Partnership DissolutionRealisation AccountLiability SettlementClosing BusinessAccounting EntriesClosing 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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