During the dissolution of a firm, when the remaining assets are sold for cash, what is the effect on the cash/bank balance?

Correct answer: Cash or bank balance increases

Selling the assets for cash brings the sale proceeds into the firm, so the cash or bank balance increases. The entry is: Bank Account Dr. To Realisation Account. Option D is incorrect because the sale creates a cash inflow; any reduction in partners’ capital may occur later due to a net realisation loss, not as the direct effect of the sale. Exam tip: Debit the Cash/Bank Account with the proceeds received from asset realisation.