Question

Consider the following statements

Statement 1: "On dissolution Cash or Bank Account is closed automatically".

Statement 2: This is done because of the double- entry system of book-keeping. 

Options

• Only statement 1 is correct.

• Only statement 2 is correct.

• Both the statements are incorrect.

• None of the above

Answer 1

Both the statements are incorrect.

Explanation:

The Cash or Bank Account is automatically closed upon dissolution because any balance in the capital accounts is transferred to the Cash or Bank Account. This is done so that the balance on both sides of the dish, or the Bank Account, is the same. This is due to the double-entry bookkeeping technique.