On dissolution, the final balance of capital accounts are transferred to :
Answer & explanation
Correct answer: option 2
The correct answer is option 2- Cash account.
On dissolution, the final balance of capital accounts are transferred to cash account as it is paid off by the firm.
If the partner’s capital account shows a debit balance after various 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
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.