What is realization account
Dear Student,
Realisation account refers to an account opened by the firm when it goes to dissolution to record the profit made from the sale of assets and loss suffered on the settlement of liabilities.
When the partnership firm is subject to dissolution, its account books are closed and profit earned, or loss incurred on the realisation of assets and payment of liabilities is reckoned. And to do so, realisation account is prepared, to identify the net profit or loss, which is transferred to all partner’s capital account in the ratio in which profit and loss are shared by them.
Regards.
Realisation account refers to an account opened by the firm when it goes to dissolution to record the profit made from the sale of assets and loss suffered on the settlement of liabilities.
When the partnership firm is subject to dissolution, its account books are closed and profit earned, or loss incurred on the realisation of assets and payment of liabilities is reckoned. And to do so, realisation account is prepared, to identify the net profit or loss, which is transferred to all partner’s capital account in the ratio in which profit and loss are shared by them.
All the assets and external liabilities are transferred to this account except:
- Cash in hand
- Bank balance
- Fictitious Asset
Regards.