Question

why dont we record the profit / loss obtained through sale of an asset in the realisation account

Answer 1

Explanation:

On dissolution, the books of the firm are to be closed. Dissolution process starts by opening the following accounts in the firm’s books:

Realisation Account,

Partner’s Loan Account,

Partners’ Capital Accounts,

Bank or Cash Account.

1] Realisation Account

The object of preparing Realisation account is to close the books of accounts of the dissolved firm and to determine profit or loss on the Realisation of assets and payment of liabilities. It is prepared by:

Transferring all the assets except Cash or Bank Account to the debit side of the account.

Transferring all the liabilities except Partner’s Loan Account and Partners’ Capital Accounts to the credit side of the account.

Crediting the Receipt on the sale of assets to the account.

Debiting the payment of Liabilities to the account.

Debiting the dissolution expenses of the firm.

The balance in the account may be either profit or loss. We transfer this balance to the Capital Accounts of the Partners in their profit-sharing ratio.