Question

State the following statement is true:

On the dissolution of a firm, cash-in-hand is transferrred to the ‘Realisation Account’.

Answer 1

This statement is false.

Explanation:

When a firm is dissolved, cash-in-hand is not transferred to the realisation account. Instead, cash-in-hand remains as a cash asset and is generally shown in the firm’s balance sheet. During dissolution, the realisation account is used to record the sale of assets and settlement of liabilities, and the proceeds from these sales, along with any remaining cash, are used to settle the firm’s obligations. Any remaining balance in the cash account after all liabilities are paid off is then distributed among the partners.