What does the final balance of the Realisation Account indicate upon the dissolution of a partnership firm?

Correct answer: Profit or loss on realisation

The Realisation Account records the profit or loss arising from transferring and realising assets and settling liabilities. Its final balance is transferred to the partners’ capital accounts as profit when it has a credit balance and as loss when it has a debit balance. It does not represent the firm’s cash balance or the value of stock alone. Exam tip: credit balance means realisation profit, while debit balance means realisation loss.