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Subjects
Class 12AccountancyDissolution of a Partnership FirmClosing the BusinessMedium
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A partner personally pays realization expenses of ₹3,000, and the firm agrees to reimburse him. When this liability is recorded in the firm’s books, which account is credited?

Answer and explanation

Correct answer: Partner’s Capital Account

When a partner pays realization expenses on behalf of the firm, the amount becomes payable by the firm to that partner. The entry is: Realization Account Dr. ₹3,000; To Partner’s Capital Account ₹3,000. Therefore, the Partner’s Capital Account is credited. The Bank Account would be credited only when the firm actually makes the reimbursement. Exam tip: For expenses paid personally by a partner on behalf of the firm, credit the partner’s capital account when recording the liability.

Related tags

Partnership DissolutionRealization ExpensesPartner Capital AccountJournal EntriesReimbursementClosing 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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