Cessation of business and liquidation: what are the accounting entries to pass?

Once a company decides to put an end to its activity, the accounting work is not quite finished. For accountancy training Best school of accountancy In Lahore. Indeed, several entries are necessary for the liquidation of the company and a possible sharing of the remaining equity.

What is the termination of business and liquidation?

While many think that cessation of activity and liquidation are synonymous terms, it is actually nothing.

Indeed, the cessation of activity corresponds very simply to the fact that an undertaking ends its activity. It may originate in a will of the executives to close the company for reasons X or Y or in a judgment ordering its liquidation (payment with impossibility of reorganization).

Liquidation is the consequence of the economic disappearance of a company. It is carried out by the head of the company and his accountant or by a mandated liquidator (in the case of liquidation). It involves several steps: realization of assets, recovery of receivables, clearing of liabilities and sharing of equity.

Naturally, all these steps are the subject of a particular accounting.

The accounting entry of company liquidation

As from the date of cessation of activity, the management accounts can no longer be used and the liquidator may begin his mission.

At the end of a full inventory, he will sell fixed assets and inventories, i.e. all the assets and will repay all outstanding debts and therefore purge the liabilities. The balance of all transactions will be made via the accounts "773 - Liquidation income - Income" and "673 - Liquidation income - Expenses".

Once all the liquidation transactions are recorded in the newspaper, it is time to draw up the liquidation balance sheet, which must include, except in the case of liquidation, only the cash accounts, the account of the operator and the Liquidation result. To allocate this result, account 773 is debited and Accounts 673 and "108 - Operator's Account" are credited

All you have to do is clear the liquidation result by debiting account "108 - Account of the operator" and crediting account "512 - Bank". Everything is now in order...