When unrecorded liabilities are paid off by partners, these liabilities are shown in:

Debit side of Realisation Account

The correct answer is Option (1) → Debit side of Realisation Account.

Unrecorded liabilities are those liabilities which are not recorded in the books of account. The accounting treatment for unrecorded liability is:

(a) When the unrecorded liability is paid off: Realisation A/c Dr. To Bank A/c.

(b) When it is paid by the partner then Partner's Capital account is credited instead of bank account and realisation account is debited. Realisation A/c Dr. To Partner's Capital A/c.