Question

Unrecorded liabilities when paid by a partner are shown in

• A. Debit side of Realisation Account
• B. Debit side of Bank Account
• C. Credit side of Realisation Account
• D. Credit side of Bank Account

Hint:

Remember the general rule for liability payment on dissolution:
Any payment made for a liability (whether recorded or unrecorded) is always debited to the Realisation Account.
If paid in cash: To Bank A/c.
If settled by a partner: To Partner's Capital A/c.
Since it is a debit to Realisation Account, it will always appear on the debit side of the Realisation Account.

Answer 1

The Correct Option is A

Step 1: Understanding the Question:
The question asks where the payment of unrecorded liabilities by a partner is recorded during the dissolution process of a partnership firm.

Step 2: Key Formula or Approach:
We need to determine the journal entry passed when an unrecorded liability is discharged by a partner and check how this affects the ledger accounts.

Step 3: Detailed Explanation:

• Concept of Unrecorded Liabilities:
  Unrecorded liabilities are those obligations of the firm that were not recorded in the balance sheet prior to the date of dissolution.
  On dissolution, all liabilities (whether recorded or unrecorded) must be paid off.
  
• Journal Entry for Payment by Partner:
  When a partner agrees to pay off an unrecorded liability, the firm's liability to the outsider is settled, but the firm now owes that amount to the partner.
  Thus, the partner's capital account must be credited.
  The nominal account for dissolution, i.e., Realisation Account, must be debited to record the expense/settlement.
  The journal entry is:
  \[ \text{Realisation A/c} \quad \text{Dr.} \]
  \[ \quad \text{To Partner's Capital A/c} \]
  
• Ledger Posting:
  This entry shows that the transaction is posted to the Debit side of the Realisation Account and to the Credit side of the Partner's Capital Account.
  
• Analysis of Incorrect Options:
  Option (B) and Option (D) are incorrect because the bank account is not affected since the payment is made by the partner personally, and no cash outflow occurs from the firm's bank account.
  Option (C) is incorrect because the credit side of the Realisation account is used to record the transfer of recorded liabilities and the receipts from the realisation of assets.
  

Step 4: Final Answer:
The payment of an unrecorded liability by a partner is debited to the Realisation Account, which corresponds to Option (A).