In the case of dissolution of a partnership firm, unrecorded liabilities when paid are shown in:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Debit of Realisation Account
When a partnership firm is dissolved, all assets and liabilities are transferred to the Realisation Account to determine profit or loss on realization.
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Unrecorded liabilities → These are obligations not appearing in the books, but discovered at the time of dissolution.
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When such liabilities are paid, it represents an expense or loss to the firm.
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Hence, payment of unrecorded liabilities is debited to the Realisation Account, since it reduces the firm's capital.
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The journal entry to record this payment is:
Realisation A/c (Debit)To Bank/Cash A/c (Credit)