In financial accounting, the term "realisation" refers to the process of converting assets into cash or cash equivalents. When a business is being closed down or liquidated, its outside liabilities must be paid off before the remaining assets can be distributed among the owners. To account for this, the outside liabilities can be transferred to a Realisation Account. This is a temporary account that is used to record the payments made to settle the outside liabilities.



The following steps can be taken to transfer outside liabilities to a Realisation Account:

1. Identify the outside liabilities that need to be settled before the business can be liquidated.


2. Create a Realisation Account in the general ledger.


3. Transfer the outside liabilities to the Realisation Account by debiting the Realisation Account and crediting the respective liability accounts.


4. Make payments to settle the outside liabilities by debiting the Realisation Account and crediting the cash account.


5. Once all the outside liabilities have been settled, any remaining balance in the Realisation Account can be distributed among the owners of the business.

Assuming that a business is being liquidated and has an outside liability of $10,000 to be settled before distribution of remaining assets to the owners. The following journal entry can be made:

Realisation Account Debit $10,000

To Outside Liability Account Credit $10,000

This entry transfers the outside liability to the Realisation Account.

Once the outside liability is paid off, the following entry can be made:

Outside Liability Account Debit $10,000

To Realisation Account Credit $10,000

This entry records the payment of the outside liability from the Realisation Account.



To conclude, the transfer of outside liabilities to a Realisation Account is an important step in the process of liquidating a business. By creating a Realisation Account, the business can keep track of the payments made to settle the outside liabilities and ensure that the remaining assets are distributed to the owners in a fair and transparent manner.

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