when assets and liabilities are transfered to realisation account their value becomes 0 then why sale and payment entry is made

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When assets and liabilities are transferred to Realisation A/c, their value becomes nil in their respective accounts. After all transfers are made to Realisation A/c, the debit side represents the total of all the assets up for sale and credit side represents total of all the liabilities to be settled. So when actual sale of assets is made, the amount received is entered on the credit side of Realisation A/c. For example you transferred Furniture A/c - Rs.50000 to the debit side of Realisation A/c, balance in Furniture A/c becomes becomes nil. But when you actually sell furniture for Rs.40000, it's entry is made on the credit side of Realisation A/c. If this account was not transferred you would have made this entry on the credit side of Furniture A/c. The physical asset does not go anywhere, till it is sold, only difference is that it is transferred and sold through Realisation A/c. Practically no difference, we transfer assets and liabilities to Realisation A/c only to know Profit/Loss made at the time of dissolution due to sale of assets and settlement of liabilities.

answered Aug 5, 2014 by jbsclasses (3,971 points)