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When a partnership liquidates, the following occurs:
- assets are sold,
- creditors are paid, and
- cash is distributed to partners.
Difficulties arise because the proceeds from the sale of assets rarely equal the value stated in the books of the partnership. Gains or losses on realization are recorded to the Gain and Loss on Realization account. The net gain or loss represents a change in equity, and is divided among partners according to the income-sharing agreement.
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