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 preparing a Realization Account during dissolution of a partnership firm, the sequence must follow a logical flow:

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

All assets (except cash/bank) are debited and all liabilities are credited to the Realization Account. This closes these accounts and brings them into the Realization Account.

Step 2: Realization of the assets (A)

Assets are then sold and converted into cash. The amounts received are recorded (Cash/Bank A/c is debited and Realization A/c is credited).

Step 3: Payment of liabilities (D)

Liabilities are paid off using the cash available. The Realization Account is debited and Cash/Bank Account is credited.

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

After all assets are realized and liabilities are paid, the Realization Account is balanced. The balancing figure represents either profit (if credit side > debit side) or loss (if debit side > credit side) on realization, which is then transferred to partners' capital accounts.

The profit or loss can only be determined after all transactions are recorded, making it the final step.

Correct Answer: Option 3: (B), (A), (D), (C)