Dissolution of Partnership Firm
Realisation Account and journal entries
Record every dissolution transaction through Realisation, capitals and cash.
On dissolution, a Realisation Account is opened to sell the assets, pay the liabilities, and find the profit or loss on closing down. Think of it in two halves:
- Transfer the books into it. Debit it with all the assets at book value, except cash, bank and fictitious assets (like a P&L debit balance). Credit it with all the outside liabilities at book value. Provisions against assets (like a provision for doubtful debts or depreciation) go to the credit side too.
- Record what happens. Sales of assets, and assets taken over by a partner, are credited (they bring value in). Liabilities paid (at the actual amount), unrecorded liabilities paid, and realisation expenses are debited.
Where the money goes for each event:
| Event | Entry |
|---|---|
| Asset sold | Bank Dr. To Realisation |
| Asset taken by a partner | Partner's Capital Dr. To Realisation |
| Liability paid | Realisation Dr. To Bank |
| Liability a partner agrees to pay | Realisation Dr. To his Capital |
| Expenses paid by the firm | Realisation Dr. To Bank |
| Expenses paid by a partner for the firm | Realisation Dr. To his Capital |
No entry cases: a creditor accepts an asset in full settlement (both items are already in the Realisation Account); or expenses are both borne and paid by a partner himself.
A partner's loan does not go to the Realisation Account: it is paid separately, by cash, before the capitals. Reserves and accumulated profits go to the partners' capitals.
Example: debtors of 30,000 realise 5% less. 5% of 30,000 = 1,500, so 28,500 is received: Bank Dr. To Realisation 28,500.
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No account, no email address. Opens the real product.