Question

Bank overdraft is transferred to Bank account on the dissolution of a firm.

Hint:

Overdraft is a liability → goes to Realisation Account, not Bank Account.

Answer 1

A bank overdraft is a liability and therefore it is not transferred to the bank account at dissolution. Instead, all liabilities, including bank overdraft, are transferred to the Realisation Account. The liability is settled by paying the overdraft amount through the bank account. Only cash and bank balances are transferred to the Realisation Account on dissolution. Since the overdraft represents money owed to the bank, it cannot be transferred into the bank account itself; it must be paid off during settlement.