Question

In case of dissolution,bad debts recovered should be:

• A. Debited to Realisation Account
• B. Debited to Debtors Account
• C. Credited to Bank Account
• D. Credited to Realisation Account

Answer 1

The Correct Option is D

In the event of dissolution of a partnership firm, if any bad debts that were previously written off are recovered, this amount should be credited to the Realisation Account. This is because the Realisation Account is used to record all gains and losses during the dissolution process, including recoveries of previously written-off debts.
The journal entry for this transaction would be:
Bank Account Dr.To Realisation Account
This reflects that cash has been received from the recovery of bad debts, which ultimately benefits the partners by increasing the total realizable assets of the firm.