Capital accounts of the partners may be fixed or fluctuating
Fixed Capital Accounts: When the partners agree that the amount of capital contributed by them shall remain fixed and shall not be reduced or increased during the term of the partnership except by special agreement, the capital accounts are said to be fixed. Under such circumstances, it becomes necessary to have current accounts of the partners. The usual adjustments at the end of the period in regard to interest on capital, interest on drawings, salary or commission due to partner, share in profit or loss will be made in the current accounts. A credit balance in current account will be shown on the liabilities side and a debit balance on the asset side of the Balance Sheet. In case partners withdraw regularly a fixed amount a separate Drawing Account can be opened to facilitate the calculation of interest on drawings so that balance of drawings accounts including interest on drawings may be transferred to current account by passing one entry.
Fluctuating Capital Account: When all the adjustments relating to interest on capital, interest on drawings, salary or commission, share of profit or loss will be made in the capital account, the balance of capital account will fluctuate from year to year and that is why these are known as fluctuating capital accounts.
Difference between Fixed Capital Account and Fluctuating Capital Account
Difference between Capital Account and Current Account
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