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If a firm prefers to show Partners' Capital Accounts at the amount introduced by the partners as capital, where are the entries for salary, drawings, interest on capital or drawings, and profits made?
  • a)
    Trading Account
  • b)
    Partners’ Current Account
  • c)
    Balance Sheet
  • d)
    Profit and Loss Account
Correct answer is option 'B'. Can you explain this answer?
Most Upvoted Answer
If a firm prefers to show Partners Capital Accounts at the amount intr...
When a firm maintains fixed capital accounts for partners, the capital introduced by partners remains unchanged in the Partners' Capital Account.
All other periodic adjustments like:
  • Salary to partners
  • Interest on capital
  • Interest on drawings
  • Drawings
  • Share of profits/losses
are recorded in a separate account called the Partners’ Current Account.
This helps in keeping the capital account fixed, while fluctuations in a partner's equity due to these items are tracked in the current account.
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