What is ‘closing the accounts’ exactly? What is done with the balance c/ds then?
Swarnima,
At the time of dissolution, the business is wound up, so we need to settle (close) the accounts of all external liabilities. So, whatever cash the firm realises from the sale of its asset is utlised towards the payment of firm's obligations.
Don't confuse dissolution with reconstitution. It is at the time of reconstitution that closing balances (balance c/d) are ascertained.
However, at the time of dissolution if
1. Credit side > Debit side, then the difference amount is paid to the partners (surplus)
2. Debit side > Credit side, then the different amount is to be brought by the partners (deficiency)
At the time of dissolution, the business is wound up, so we need to settle (close) the accounts of all external liabilities. So, whatever cash the firm realises from the sale of its asset is utlised towards the payment of firm's obligations.
Don't confuse dissolution with reconstitution. It is at the time of reconstitution that closing balances (balance c/d) are ascertained.
However, at the time of dissolution if
1. Credit side > Debit side, then the difference amount is paid to the partners (surplus)
2. Debit side > Credit side, then the different amount is to be brought by the partners (deficiency)