What is the sequence of preparing account at the time of dissolution of partnership firm?

1) Bank Account
2) Realisation Account
3) Partner's Capital Account
4) Partner's Loan A/c

Choose the correct answer from the options given below.

2431

The correct answer is option 2- 2431. 

2) Realisation Account- First of all, realization account is prepared to realize the assets and liabilities. 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. The balance in this account is termed as profit or loss on realisation which is transferred to partners’ capital accounts in the profit sharing ratio

4) Partner's Loan A/c-  After the realisation of assets partner's loan is settled so the partner's loan is made at the second number. Partner's loan account is not transferred to realisation account. For payment of loans due to partners, the following journal entry is made- Partner’s Loan A/c Dr. To Bank A/c.

3) Partner's Capital Account-  After partner's loan account, partner's capital account is settled so their capital account is made. Capital account is made to know the capital balance of the partners. For settlement of partners’ accounts, partner's capital account are made. If the partner’s capital account shows a debit balance after all adjustments, he brings in the necessary cash for which the entry will be: Bank A/c Dr. To Partner’s Capital A/c . The balance is paid to partners whose capital accounts show a credit balance and the following entry is recorded- Partners’ Capitals A/cs (individually) Dr. To Bank A/c.

1) Bank Account- At last, bank or cash account is made. No balance is left in cash or bank account as all the claims of the firm are settled. The aggregate amount finally payable to the partners must equal to the amount available in bank and cash accounts. Thus, all accounts of a firm are closed in case of dissolution.