Unrecorded liabilities when paid are shown in:
Unrecorded liabilities when paid are shown in:
Solution
When a partnership firm is dissolved, all assets and liabilities are transferred to the Realisation Account. However, unrecorded liabilities are those that were not entered in the books of accounts earlier.
Since unrecorded liabilities were never recorded in the books, they were not transferred to the Realisation Account at the time of dissolution. However, when these liabilities are discovered and paid during the dissolution process, they need to be accounted for.
Journal Entry when unrecorded liabilities are paid:
Realisation A/c Dr.
To Bank A/c
The Realisation Account is debited because:
- It bears all costs and expenses related to dissolution
- Payment of any liability (recorded or unrecorded) during dissolution is a loss/expense for the firm
- Since these liabilities were never credited to Realisation Account earlier (being unrecorded), only the payment entry is recorded, which debits the Realisation Account
The Bank Account is credited as cash is paid out.
Therefore, unrecorded liabilities when paid are shown in the Debit of Realisation Account.
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