Question

How do you treat PBD on dissolution of firm?

Answer 1

Answer:

Realisation Account is a Nominal Account. This account is used to find out the profit or loss made at the time of dissolution of the firm. The debit side of Realisation A/c can be called a Maha (Combined) Asset Account and credit side of Realisation A/c can be called a Maha (Combined) Liability side. As you know that all the assets have debit balance, hence they are transferred to the debit side of the Realisation A/c and all Liabilities/Provisions have credit balance and are transferred to the credit side of the Realisation A/c. The Reserve for Bad Debts Account is a credit balance, hence it is transferred to the credit side of the Realisation A/c.