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Dissolution of a Partnership Firm — Part 2: Realisation, Capital Accounts and the Bank Account

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Lesson

Closing the books of a dissolved firm

Part 2 — realising assets, paying liabilities, takeovers, unrecorded items, expenses, and the final capital and Bank accounts.

In this lesson you will

Record the sale of assets and the payment of liabilities
Record assets and liabilities taken over by partners, and unrecorded items
Treat realisation expenses and a partner’s remuneration correctly
Prepare the Realisation Account, partners’ capital and loan accounts and a Bank Account that closes at nil

Part 2 at a glance

Concept

Selling assets and paying liabilities

Table of entries: an asset sold for cash is Bank debit, Realisation credit; a liability paid is Realisation debit, Bank credit for the amount actually paid; a worthless asset needs no entry
Transaction	Journal entry
Asset sold for cash	Bank A/c Dr, To Realisation A/c
Outside liability paid (full or at a discount)	Realisation A/c Dr, To Bank A/c (amount actually paid)
Asset that fetches nothing	No entry (its book value stays on the debit side)

Concept

Partners who take over assets or liabilities

Table of partner transactions: taking over an asset debits the partner’s capital and credits Realisation; taking over a liability or paying firm expenses debits Realisation and credits the partner’s capital
Transaction	Journal entry	Effect on the partner
Partner takes over an asset	Partner’s Capital A/c Dr, To Realisation A/c	Gets less cash at the end
Partner takes over (pays) a liability	Realisation A/c Dr, To Partner’s Capital A/c	Gets more cash at the end
Partner pays expenses for the firm	Realisation A/c Dr, To Partner’s Capital A/c	Gets more cash at the end