Revaluation Account vs. Realisation Account — What's the Difference?

In accounting, especially within partnerships, the Revaluation Account and Realisation Account serve distinct purposes. The Revaluation Account is used when there is a change in the partnership deed due to the admission, retirement, or death of a partner, which necessitates the revaluation of assets and reassessment of liabilities. This account records the increase or decrease in the values of assets and liabilities to reflect their true and fair values at the time of reconstitution of the partnership.

In contrast, the Realisation Account is primarily used during the dissolution of a partnership firm. This account comes into play when the business is winding up, and assets are sold, and liabilities are settled. The Realisation Account records the amount realized from the sale of assets and the amount paid to settle the liabilities, along with the distribution of any surplus or deficit among the partners.

The Revaluation Account is not concerned with the realization of assets or payment of liabilities but focuses on adjusting the book values of assets and liabilities to their current values. It provides a clear picture of the financial standing of the partnership at the time of reconstitution. The Realisation Account, on the other hand, is concerned with the actual realization of assets and settlement of liabilities and accurately reflects the financial transactions occurring during the dissolution process.

Both the Revaluation and Realisation Accounts are crucial in providing transparency and accuracy in financial reporting within partnerships. They ensure that the financial statements reflect the true and fair value of the firm's assets and liabilities, whether during reconstitution or dissolution of the partnership, facilitating equitable distribution among the partners and adherence to accounting principles.