meaning of Realisation Account ?
Answers
On dissolution of a firm all the books of account are closed all assets are sold and all liabilities are paid off. In order to record the sale of assets and discharge of liabilities a nominal account is opened named realisation account.
Explanation:
Realization Account is prepared at the time of dissolution of a partnership firm. This account is prepared to know the profit made or loss incurred at the time of dissolution of a firm. All the assets except cash and bank a/c are transferred to the debit side of realization account and liabilities (not capital accounts) are transferred to the credit side of realization account. When assets are sold cash/bank A/c is debited and Realization A/c credited. On settling the liabilities Realization A/c is debited and Cash/Bank A/c is credited. In last if total of credit side exceeds debit side, it means there is profit and that is transferred to partner's capital accounts. In case of loss, the partners' capital accounts are debited and Realization A/c credited.