If sale proceeds of an asset are directly paid to a creditor then what is the correct approach in Realisation Account?

Correct answer: Show asset realisation credit and liability payment debit both

The direct answer is option A: show both the asset-realisation credit and the liability-payment debit. In dissolution accounting, two economic events occur even when the cash does not pass through the firm. First, the asset is realised or sold, so the Realisation Account receives a credit for the sale proceeds. Second, the creditor’s liability is settled, so the Realisation Account receives a debit for the amount paid or adjusted. Option A correctly records both parts. Option B, no entry, is wrong because both the asset and liability must be removed or settled. Option C records only the liability settlement and ignores the asset realisation. Option D records only the sale and ignores payment of the creditor. Direct payment changes the cash route, not the accounting substance. The exam cue is: record the asset event and the liability event separately, even when one is directly adjusted against the other.