If, on dissolution of a partnership firm, a creditor agrees to bear the realisation expenses, which accounting entry will be passed?

Correct answer: Creditors A/c Dr. and Realisation A/c Cr.

When a creditor bears the realisation expenses, the firm does not make a cash payment. Instead, the creditor’s account is debited by the amount of the expense and the Realisation Account is credited: Creditors A/c Dr. To Realisation A/c. Option B is incorrect because it records a cash payment by the firm, which does not occur in this case. Exam tip: For expenses borne by a creditor, remember the entry ‘Creditors A/c Dr. To Realisation A/c’.