Accountancy Part ADissolution of Partnership Firm

On the dissolution of a firm, the Creditors are transferred to:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → Realization Account

Creditors are an external liability. On dissolution every external liability is closed by transfer to the credit of the Realisation Account, and its payment is later debited there.

NCERT (2026-27 edition):
Journal Entries – “… 2. For transfer of liabilities All external liability accounts including provisions, if any, are closed by transferring them to the credit of Realisation account.”