On dissolution of a firm, the account prepared to record the profit or loss from the realisation of assets and settlement of liabilities is ultimately closed into which account?

Correct answer: Realisation Account

The Realisation Account is prepared at the time of dissolution to record the profit or loss arising from the realisation of assets and settlement of liabilities. Its balance is transferred to the partners’ capital accounts as profit or loss, thereby closing the account. Sales, Purchases and Salary Accounts relate to routine business transactions and are not created specifically for dissolution. Exam tip: Whenever the question refers to realising assets and settling liabilities, identify the Realisation Account.