Question

___________ A/c is debited and _________ A/c is credited for the journal entry for payment of liabilities.

• A. Realisation, Liabilities (Individually)
• B. Realisation, Partner's Capital
• C. Realisation, Bank
• D. Bank, Realisation

Answer 1

The correct option is C Realisation, Bank

When the firm is dissolved, its books of account are to be closed and the profit or loss arising on realisation of its assets and discharge of liabilities is to be computed. For this purpose, Realisation account is prepared to ascertain the net effect (profit or loss) of realisation of assets and payment of liabilities which may be transferred to partner's capital accounts in their profit sharing ratio. Hence, all assets (other than cash in hand, bank balance and fictitious assets, if any), and all external liabilities are transferred to this account. The journal entry for payment of liabilities is:

Realisation A/c Dr.

To Bank A/c