Realisation account A realisation account is a nominal account prepared at the time of dissolution of a business. All the assets and liabilities except cash and bank balance are transferred to the realisation account. A realisation account is prepared to calculate the profit or loss on the dissoluRead more
Realisation account
A realisation account is a nominal account prepared at the time of dissolution of a business. All the assets and liabilities except cash and bank balance are transferred to the realisation account. A realisation account is prepared to calculate the profit or loss on the dissolution or closing of the firm.
All the assets are transferred to the debit of the realisation account and all the liabilities are transferred to the credit of the realisation account. When assets are sold, Cash A/c is debited and Reliastion A/c is credited and when liabilities are paid off, Cash A/c is credited and Realisation A/c is credited.
If the credit side exceeds the debit side of the realisation account, it results in profit. In contrast, if the debit side exceeds the credit side of the realisation account, it results in a loss. in case of profit, the Capital account is credited and in case of loss, the Capital account is debited.
The debit side of the realisation account
All the assets including Land and building, Plant and machinery, furniture, stock, debtor and investment are transferred to the debit of the realisation account and payment of outside liabilities is also recorded on the debit side of the realisation account. Payment made for dissolution expenses is also recorded on the debit side of the realisation account.
- Assets: All the assets including Land and building, Plant and machinery, Furniture, Stock, sundry debtors, and investments are transferred to the debit side of the realisation account. The debit balance of profit and loss balance is not transferred.
- Accounting entry for this is as follows:
Realisation A/c Dr…..
To Assets A/c …..
(All the assets transferred to the realisation account)
- Cash and bank A/c: Payment for the liabilities including sundry creditors, outstanding expenses, bills payable, loans and advances, bank overdrafts and cash credit is transferred to the debit side of the realisation account.
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- Accounting entry for this is as follows:
Realisation A/c Dr…..
To Cash A/c …..
(Payment made for liabilities)
- Profit on realisation: If the credit side of the realisation account exceeds the debit side, it results in a profit then the capital account is credited.
-
- Accounting entry for this is as follows:
Realisation A/c Dr…..
To Capital A/c …..
(Being profit transferred to the capital account)
Credit side of realisation account:
All the liabilities and provisions are transferred to the credit side of the realisation account. Capital account of partners, profit and loss balance and loans from partners are not transferred. Sale proceeds of all the assets including Land and building, Plant and machinery, furniture, stock, debtor and investment are transferred to the credit side of the Realisation account.
Format for realisation Account is as under:
| Realisation A/c | |||
| Particulars | Amount | Particulars | Amount |
| To Land & Building | By Provision for Doubtful Debts A/c | ||
| To Plant & Machinery | By Sundry Creditors A/c | ||
| To Furniture | By Bills Payable A/c | ||
| To Debtors | By Outstanding Expenses A/c | ||
| To Goodwill A/c | By Bank Loan, Overdraft, Cash Credit A/c | ||
| To Investment A/c | By Bank/ Cash A/c (Assets realized): | ||
| To Bank/ Cash A/c (Liabilities Paid): | Land and Building | ||
| Sundry Creditors | Plant and Machinery | ||
| Bill Payable | Furniture | ||
| Outstanding Expenses | Stock | ||
| Bank Loan, | Debtors | ||
| Overdraft, | Bad Debts recovered | ||
| Cash Credit | Investment | ||
| To Bank/ Cash A/c | By Capital A/cs | ||
| (Realisation Expenses) | (assets taken over) | ||
| To Capital A/c | By Capital A/cs | ||
| (Realisation Expenses) | (Loss on Realisation) | ||
| To Capital A/cs | |||
| (Profit on Realisation) | |||
| Total | Total |
Accrued expenses are those expenses that have already been incurred but not paid. The business has already received the benefit of these goods or services but is yet to pay for them. For example, X Ltd took an insurance policy on 30th September 20XX. The premium is to be paid annually on 30th SeptemRead more
Accrued expenses are those expenses that have already been incurred but not paid. The business has already received the benefit of these goods or services but is yet to pay for them.
For example,
Why does the concept of accrued expenses arise in accounting?
The concept of accrued expenses arises in accounting because accounting records transactions on an accrual and not cash basis.
Accounting on an accrual basis implies recording transactions as and when they are incurred while recording transactions on a cash basis means recording them as and when cash is actually paid for receiving those services.
For example,
Treatment of Accrued Expenses
Accrued expenses are classified as current liabilities. That is because the business has a short-term obligation to pay these expenses. The other party has a legal right to receive the amount due. In other words, accrued expenses become payable in the near term.
As current liabilities, accrued expenses are carried in the balance sheet on the liabilities side. They are also recognized in the income statement as an expense as per the concept of accrual basis of accounting.
Conclusion
Accrued expenses are the expenses for which the business has already received the benefit of goods or services but which are payable in an accounting period other than the one in which such benefit is received.
As per the accrual basis of accounting, they are recognized in the year in which the expense is incurred. The expense is carried forward as a current liability until the period in which it is actually paid.
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