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Simerpreet
SimerpreetHelpful
In: 1. Financial Accounting > Journal Entries

What is the journal entry for unrecorded assets in a partnership?

What is the journal entry for unrecorded assets in a partnership?
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    1. Naina@123 (B.COM and CMA-Final)
      2021-08-05T07:24:39+00:00Added an answer on August 5, 2021 at 7:24 am
      This answer was edited.

      Let me explain to you in short what is unrecorded assets in the partnership. Basically, these are the assets that are not recorded in the books of accounts but are still present in the business in physical form. These assets are directly credited to the realization account at the time of dissolution of the partnership firm

      Unrecorded assets are treated in two ways:

      1. Either they can be sold for cash.
      2. Taken over by any of the partners.

      The journal entry for the unrecorded assets sold in cash is as follows:

      Bank A/c                                                                           ……..Dr xxx
                  To Realization A/c xxx
      (Being unrecorded assets sold for cash)

      To make the entries more simple for you let me give you a small example

      A partnership firm has decided to dissolve its business. The firm had old furniture which was completely written off. They decide to sell the furniture for Rs 3,000. Here we can see that the firm has decided to realize its furniture by selling them in cash. Therefore the journal entry would be

      Bank A/c                                                                    ……..Dr 3,000
                  To Realisation A/c 3,000
      (Being old furniture sold for cash)

      And the journal entry for unrecorded assets taken over by the partner is as follows:

      Partner’s capital A/c                                                      ……..Dr xxx
                  To Realization A/c xxx
      (Being unrecorded taken over by the partner)

      For example:

      A partnership firm has decided to dissolve its business. The firm had old furniture which was completely written off. One of the pieces of furniture was taken over by one of the partners for Rs 3,000. Here we can see that the firm has decided to realize its furniture by taking over the partner. Therefore the journal entry would be

      Bank A/c                                                                    ……..Dr 3,000
                  To Partnership A/c 3,000
      (Being old furniture taken by partner)

      As realization is a nominal account it debits all expenses and losses while credit all incomes and gains. Therefore when a business treats unrecorded assets either by selling them or is taken over by the partner’s, it brings a certain amount of cash into the business hence Bank A/c and Partner’s capital account is debited in the journal entry and appear on the credit side of the realization account.

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