The order to be followed in preparation of realization account is.

(A) Realization of the assets.

(B) Transfer assets and liabilities to realization account.

(C) Ascertainment of profit or loss on realization.

(D) Payment of liabilities.

Choose the correct answer from the options given below:

When a partnership firm is dissolved, the Realization Account is prepared to record the disposal of assets and settlement of liabilities. The correct sequence is:

Step 1: Transfer assets and liabilities to realization account (B)

All assets (except cash/bank) are transferred to the debit side and all liabilities are transferred to the credit side of the Realization Account. This establishes the opening position.

Step 2: Realization of the assets (A)

The assets are sold and the actual amounts realized are recorded. Cash received from sale of assets is credited to the Realization Account.

Step 3: Payment of liabilities (D)

The liabilities are settled by making payments to creditors. The amounts paid are debited to the Realization Account.

Step 4: Ascertainment of profit or loss on realization (C)

After completing all transactions of realization and payment, the Realization Account is balanced. The difference between the two sides represents either profit (if credit side exceeds debit side) or loss (if debit side exceeds credit side) on realization, which is transferred to partners' capital accounts.

The logical flow is: First open the account by transferring items -> Then realize the assets -> Pay off the liabilities -> Finally calculate the profit/loss

Correct sequence: (B), (A), (D), (C)

Answer: Option 3