Question

State the following statement is true:

On the dissolution of a firm, the realisation account is debited with all the liabilities of the firm.

Answer 1

This statement is false.

Explanation:

In fact, liabilities are credited to the realisation account, not debited. When a firm dissolves, the liabilities (such as creditors, outstanding expenses, or loans) are credited to the realisation account to show that they are being settled or paid off. The assets of the firm, such as property, inventory, or receivables, are debited to the realisation account. The difference in the realisation account reflects any profit or loss arising from the sale of assets and settlement of liabilities during the dissolution.