Choose the correct sequence of Closing of Ledger Accounts at the time…

Choose the correct sequence of Closing of Ledger Accounts at the time of dissolution of a Partnership Firm.

(A) Closing of Cash at Bank & Cash in hand account.

(B) Realisation of Assets and payment of external liabilities recorded in Realisation Account.

(D) Closing Partner's capital account by settling the final payment to partners or receipt from partners.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → (C), (B), (D), (A)

(C) Transfer of Assets and External Liabilities to Realisation Account. — first, because everything to be wound up is brought into one account.

(B) Realisation of Assets and payment of external liabilities recorded in Realisation Account. — the assets are sold and the outsiders paid, which gives the profit or loss on realisation.

(D) Closing Partner's capital account by settling the final payment to partners or receipt from partners. — only after realisation is known can each partner's final balance be found and settled.

(A) Closing of Cash at Bank & Cash in hand account. — last, because the cash and bank accounts carry every receipt and payment above and are left with nothing once the partners are paid.

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.”

NCERT (2026-27 edition):
Journal Entries – “… It may be noted that 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.”