Transfer of Liabilities in Realisation Account

Transfer of liabilities is an important aspect of Realisation account in partnership accounting. The Realisation account is opened at the time of dissolution of the partnership firm to record the transactions related to the distribution of assets and liabilities among the partners. The transfer of liabilities in Realisation account is done as follows:

External Liabilities

External liabilities refer to the debts and obligations of the partnership firm that are owed to third parties such as creditors, lenders, banks, etc. These liabilities are transferred to the credit side of Realisation account because they are to be paid off before distributing the assets among the partners. The transfer of external liabilities in Realisation account is done as follows:

- Record the amount of external liabilities in the credit column of Realisation account.
- Pay off the external liabilities using the cash or other assets of the firm.
- If the cash or assets are not sufficient to pay off the external liabilities, then the partners are personally liable to pay off the remaining amount.

Internal Liabilities

Internal liabilities refer to the debts and obligations of the partnership firm that are owed to the partners themselves such as capital accounts, loans, advances, etc. These liabilities are transferred to the debit side of Realisation account because they are to be settled among the partners after paying off the external liabilities. The transfer of internal liabilities in Realisation account is done as follows:

- Record the amount of internal liabilities in the debit column of Realisation account.
- Settle the internal liabilities among the partners according to their respective shares in the firm.
- If any partner has a debit balance in his capital account, then he is personally liable to pay off the balance to the other partners.

Conclusion

The transfer of liabilities in Realisation account is an important step in the dissolution of a partnership firm. It helps in settling the debts and obligations of the firm among the partners and third parties. The external liabilities are transferred to the credit side of Realisation account, while the internal liabilities are transferred to the debit side of Realisation account.