Question

On dissolution, if a partner pays firm’s liability which of the following account is debited?

Options

• Profit & Loss Account.

• Realisation Account.

• Partner’s Capital Account.

• Cash/Bank Account.

Answer 1

Realisation Account.

Explanation:

During dissolution, all assets and liabilities are transferred to the Realisation Account to close the books. When a partner pays off a firm’s liability using their personal funds, it is treated as a business expenditure being settled. Therefore, the Realisation Account is debited to record the settlement, while the Partner’s Capital Account is credited because the firm now owes that money back to the partner.