Accounting treatment at the time of Dissolution of Firm

You must know the definition of dissolution of firm before completing the accounting treatment at the time of dissolution .
Dissolution is the end of firm and its work . In other words , after dissolution , firm will not continue same business with same partners because there are so many causes of dissolution of firm . Dissolution may be with or without interfere of court . When faith among partners have completely ended or partners are continuing illegal business or all the partners became insolvent then court may order to dissolute the firm and distribute firms asset among the creditors of firm .
At this time for proper allocation of assets among liabilities , it is very necessary to treatment each and every accounting elements .

1st step

Making the account of Realisation.


· In the debit side of this account we will transfer all current and fixed assets at book value except cash and bank account.
· In the credit side of this account we will transfer all the liabilities except general reserve and capital accounts
· In the debit side of this account we will show the all the amount of payment of creditors in cash or if any partner take over any liabilities .
· In the credit side of this account we will show the amount received after sale of the assets or name of partner’s capital account if he takes over any particular asset.
· In the debit side of this account we will also show the expenses of realization of assets .
· The difference of this account will profit or loss which will transfer to capital accounts of partners in their profit and loss sharing ratio.

2nd step
Making of capital accounts

After this capital accounts of partner will be made . This account will open with opening balance of their capital. In the credit side we will transfer general reserve share , profit share of realization account this account show the new amount that will be paid to each partner after dissolution .

3rd step

Making of cash or bank account
This will the last account which will make at the time of dissolution because at the time of dissolution , it is necessary to make this account . This account shows receipt and payment of cash or bank at the end of business . There must not a balance at the end of business in this account . If the debit side of this account is equal to the credit side of this account , you are made proper this account .