Question

When realisation expenses are paid by a partner on behalf of the firm, then :

• A. Realisation A/c is debited
• B. Cash A/c is credited
• C. Partner’s Capital A/c is debited
• D. Partner’s Capital A/c is credited

Hint:

If a partner pays realisation expenses for the firm, his capital account is credited.

Answer 1

The Correct Option is D

When a firm dissolves, realization expenses arise for closing accounts and settling assets and liabilities. If a partner personally covers these expenses for the firm, the firm's cash or bank balance is unaffected. This payment by the partner is treated as a capital contribution to the firm, resulting in a credit to the partner's capital account.
Journal Entry:
Realisation A/c Dr. To Partner’s Capital A/c