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Class 12AccountancyDissolution of a Partnership FirmClosing the BusinessHard
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At the dissolution of a firm, which journal entry is passed to remove external liabilities from the books?

Answer and explanation

Correct answer: Liability A/c Dr. To Realisation A/c

On dissolution, all recorded external liabilities are transferred to the Realisation Account and closed in the books. Therefore, the Liability Account is debited and the Realisation Account is credited: Liability A/c Dr. To Realisation A/c. Option B reverses the accounts, while C and D do not record the transfer of liabilities correctly. Exam tip: remember that assets transferred to Realisation are debited, whereas liabilities transferred to Realisation are credited.

Related tags

Partnership DissolutionRealisation AccountLiabilitiesJournal EntriesAccountancy Class 12Closing 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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