Summary Of Step To Close Partnership’s Book Upon Dissolution

October 14th, 2008 Comments off
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For the reader’s quick information/reference, append below a summary of steps to close the partnership books upon dissolution:-

STEPS TO CLOSE THE PARTNERSHIP BOOKS ON DISSOLUTION

  1. Open a Realization Account.
  1. Transfer the book value of assets to this Realization Account by:
  • Debit: Realization Account
  • Credit: Asset Accounts (book value of assets)
  1. Transfer the cash account with any expenses on realization to the Realization Account by:
  • Debit Realization Account
  • Credit: Cash Account
  1. Transfer the amount realized on the sale of assets to this Realization Account by:
  • Debit: Cash Account
  • Credit: Realization Account ( amount realized on sale of assets)
  1. Transfer the assets taken over by the partners at a valuation to the Realization Account by:
  • Debit: Partners’ Capital Accounts
  • Credit: Realization Accounts
  1. Pay off any liabilities whether sundry creditors or trade creditors accounts using the cash account
  • Debit:Sundry Creditors/Creditors Account
  • Credit: Cash Account

[ any discount from creditors are taken up into the Realization Account:

· Debit Creditors Account

· Credit: Realization Account ( discount allowed from creditors)

7. Balance step 1 to 5 of this Realization Account. The profit or loss on realization will be divided among the partners in their profit and loss sharing ratios and transferred to their Capital Accounts.

8. Pay off amounts owing to partners by way of advances or loans

9. The amount of cash left in the firm should then be just sufficient to pay out to the partners the amount outstanding to their credit in their respective Capital Accounts.

Any net debits in Capital Account upon debited with his share of the loss or credited with his share of the profit on realization, the relevant partners need to bring into the firm the amount of his indebtedness before the other partners are paid.

Click here to see Illustration On Steps On Partnership dissolution

Click here for ALL articles under the heading of Partnership Account

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