Methods of Maintaining Capital Accounts of Partners: There are two methods of maintaining capital accounts:
a. Fixed Capital Method: Under this method two accounts are maintained for each partner, 1. Capital Account and 2. Current Account. The capitals of the partners shall remain fixed unless additional capital is introduced or a part of the capital is withdrawn. All items like share of profit or loss, interest on capital, drawings, interest on drawings, etc. are recorded in Partner’s Current Account.
b. Fluctuating Capital Method: Under this method, only one account, i.e. capital account is maintained for each partner. All the adjustments relating to Introduction or withdrawal of capital, share of profit and loss, interest on capital, drawings, interest on drawings, salary or commission to partners, etc are recorded in the capital accounts of the partners.
Capital A/cs | Amount in Rs. | ||||
Particulars |
A |
B |
Particulars |
A |
B |
To Bank |
20000 |
|
By Balance b/f |
120000 |
80000 |
To Balance c/f |
100000 |
100000 |
By Bank A/c |
|
20000 |
|
120000 |
100000 |
|
120000 |
100000 |
Current A/cs | Amount in Rs. | ||||
Particulars |
A |
B |
Particulars |
A |
B |
To Drawings A/c |
15000 |
10000 |
By Interest on Capital |
7500 |
5000 |
To Interest on Drawings |
2000 |
1000 |
By Salary |
5000 |
- |
|
|
|
By Commission |
- |
2000 |
To Balance c/f |
13500 |
8000 |
By P & L Approp. A/c |
18000 |
12000 |
|
30500 |
19000 |
|
30500 |
19000 |
Fluctuating Capital Method:
Capital A/cs | Amounts in Rs. | ||||
Particulars |
A |
B |
Particulars |
A |
B |
To Bank (withdraw cap) |
20000 |
- |
By Balance b/f |
120000 |
80000 |
To Drawings A/c |
15000 |
10000 |
By Bank (Further cap) |
- |
20000 |
To Interest on Drawing |
2000 |
1000 |
By Interest on Capital |
7500 |
5000 |
To Balance c/f |
113500 |
108000 |
By Salary |
5000 |
- |
|
|
|
By Commission |
- |
2000 |
|
|
|
By P & L Approp. A/c |
18000 |
12000 |
150500 | 119000 | 150500 |
119000 |
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1. What is the difference between fixed and fluctuating capital accounts in partnership accounting? |
2. How are fixed capital accounts determined in partnership accounting? |
3. What factors cause fluctuation in capital accounts in partnership accounting? |
4. How are profits and losses allocated in partnership accounting? |
5. Can partners withdraw funds from their fluctuating capital accounts in partnership accounting? |
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