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Home Questions KTYBMHM4DW
Target Exam

CUET

Subject

Accountancy

Chapter

Dissolution of Partnership Firm

Question:

Select the entry that is to be made when a creditor accepts an asset in full and final settlement of his account.

Options:

Realisation A/c Dr.
         To Bank A/c

Bank A/c Dr.
          To Realisation A/c

Creditor A/C Dr.
      To Asset A/c

No Entry

Correct Answer:

No Entry

Explanation:

The correct answer is option (4) : No Entry. 

There can be 3 situations-

* If the creditor accepts an asset as full and final settlement, no journal entry is required.

* If the creditor accepts an asset as a partial payment, the entry is recorded for the cash payment portion only.

* If a creditor accepts an asset worth more than their outstanding debt, they will make a cash payment to the company for the remaining balance. In this case, the journal entry would be:
Debit: Bank or Cash A/c
Credit: Realisation A/c

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