The order to be followed in preparation of realization account is. (A…

The order to be followed in preparation of realization account is.

(A) Realization of the assets.

(B) Transfer assets and liabilities to realization account.

(D) Payment of liabilities.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → (B), (A), (D), (C)

The Realisation Account is prepared on dissolution to work out the profit or loss on selling the assets and settling the liabilities.

(B) Transfer assets and liabilities to realization account. — First, all assets (other than cash, bank and fictitious assets) and all external liabilities are transferred to the Realisation Account at book values.

(A) Realization of the assets. — Next the assets are sold and the amounts realised are credited to it.

(D) Payment of liabilities. — The money realised is used to pay off the liabilities, which are debited to it.

(C) Ascertainment of profit or loss on realization. — Only when all entries are in can the balance be struck, showing the profit or loss to be shared by the partners.

NCERT (2026-27 edition):
Accounting Treatment – “When the firm is dissolved, its books of account are to be closed and the profit or loss arising on realisation of its assets and discharge of liabilities is to be computed. For this purpose, a Realisation Account is prepared to ascertain the net effect (profit or loss) of realisation of assets and payment of liabilities which may be is transferred to partner’s capital accounts in their profit sharing ratio. Hence, all assets (other than cash in hand bank balance and fictitious assets, if any), and all external liabilities are transferred to this account. It also records the sale of assets, and payment of liabilities and realisation expenses.”