Question

What is ‘Realisation Account’?

Hint:

Opened only at dissolution, to record sale of assets and payment of liabilities and find realisation profit/loss.

Answer 1

Step 1: State when this account is opened:
A Realisation Account is opened in the books of the firm at the time of dissolution, when the firm's business is being wound up completely.

Step 2: Explain what it records:
All assets (other than cash/bank) are transferred to its debit side and all outside liabilities to its credit side; as assets are actually sold and liabilities actually paid, those real figures are also recorded here so the account can reveal the net profit or loss on winding up the business.

Final Answer:
Realisation Account is the account opened on dissolution of a firm to record the sale of assets and settlement of liabilities, in order to find the profit or loss on realisation.