A firm pays Rs. 5,000 in cash as expenses incurred during dissolution. Which journal entry is correct?
Correct answer: B. Realisation Account Dr. 5,000; Cash Account Cr. 5,000
- A. Cash Account Dr. 5,000; Realisation Account Cr. 5,000
- B. Realisation Account Dr. 5,000; Cash Account Cr. 5,000
- C. Partners' Capital Accounts Dr.; Cash Account Cr.
- D. Realisation Account Dr.; Partners' Capital Accounts Cr.
Explanation
Dissolution expenses are losses connected with realisation, so the Realisation Account is debited. Cash decreases when the expense is paid, so Cash Account is credited.
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About Partnership Accounts
Partnership accounts cover the partnership agreement, capital and current accounts, profit and loss appropriation, salaries, interest on capital, interest on drawings and profit-sharing ratios. They also address changes in partnership, including admission, retirement, goodwill, revaluation, dissolution and the settlement of partners’ balances.
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