Question

The balance left in the capital account on dissolution of the firm is transferred to the ________.

• A. Realization Account
• B. Profit and Loss Account
• C. Bank Account
• D. None of the Above

Answer 1

Answer: (C)

Bank Account

Dissolution of the firm is the discontinuation of all the business activities of the firm.

At the time of dissolution of the firm, partner's capital accounts are prepared in the same way as prepared at the time of admission, retirement and death of partners. The only difference is that capital accounts are closed by transfer to bank account. These accounts never closed as balance c/d because the firm is already dissolved and very account has to be closed as:

a) If partners capital account is having credit balance, this will be written as "To Cash/Bank A/c" at the debit side of the capital account against the balancing figure and close the account.

b) If partners capital account is having debit balance, this will be written as "By Cash/Bank A/c" at the credit side of the capital account against the balancing figure and close the account.

At the time of the dissolution of the firm all balances lying in capital account need to be settled through bank account.