PARTNERS’

CAPITAL ACCOUNTS
 Capital Accounts of Partners

All transactions relating to the partners

are recorded in this account. Since there are
two or more partners, transactions relating
to partners should be recorded in their
respective capital accounts.
 Methods of Preparing
Partners' Capital Account

Fluctuating Fixed
Capital Method Capital Method
1. Fluctuating Capital Methods

Only one account is maintained

(Partner’s capital account)

All the items affecting partner’s capital

account is recorded. Such as interest on capital,
interest on drawings, drawings, salary,
commission, share of profit or loss etc.
Balance in the capital accounts keeps on
fluctuating year after year
 Fluctuating Capital Method
PROFORMA

Partner's Capital Account

Date Particulars Amount Date Particulars Amount

Drawings XXX Balance b/d XXX

Interest on Drawings XXX Cash/bank XXX
P/L Appn A/c (Loss) XXX Assets (Land/building etc) XXX
Interest on Capital XXX
Salary XXX
Balance c/d XXX Commission XXX
PlL Appn A/c (Profit) XXX

XXXX XXXX

Balance b/d XXX

2. Fixed Capital Method

Two accounts are maintained for each partner

(Capital account and Current account)

Additional capital introduced and withdrawals out of

capital are shown in Partner's Capital Account

Interest on capital, drawings, interest on drawings,

salary, commission, share of profit or loss etc. are
recorded in Partner’s Current Account
 Fixed Capital Method
PROFORMA

Partner's Capital Account

Date Particulars Amount Date Particulars Amount

Cash / Bank XXX Balance b/d XXX

(withdrawal out of Cash/bank XXX
capital) Assets (Land/building etc) XXX
(Additional capital
introduced)
Balance c/d XXX

XXXX XXXX

Balance b/d XXX

 Fixed Capital Method
PROFORMA

Partner's Current Account

Date Particulars Amount Date Particulars Amount

Drawings XXX Balance b/d XXX

Interest on Drawings XXX Interest on Capital XXX
P/L Appn A/c (Loss) XXX Salary XXX
Commission XXX
PlL Appn A/c (Profit) XXX
Balance c/d XXX

XXXX XXXX

Balance b/d XXX

 Fixed Capital Method
This method is known as Fixed Capital Method, as the
original capital invested by any partner remains the same
unless additional capital is brought in or part of capital is
withdrawn as per agreement

Fluctuating Capital Method

Since the capital balance of partners keeps on fluctuating
from year to year, this method is know as Fluctuating Capital
Method

25/12/19
 Illustration 1
Anand and Balan entered into a partnership contributing Rs.
50000/- and Rs. 30000/- respectively. They decided to share profit and
losses in the ratio of 2:1. Anand was entitled to a salary of Rs. 5000/-
p.a. Interest on capital was to be provided @ 6% p.a. The drawings of
Anand and Balan for the year ending December 31, 1997 were Rs.
6000/- and Rs. 5000/- respectively. Interest on drawings, Anand Rs.
300/- and Balan Rs. 200/- to be charged.

The profits of the firm after providing for Anand's salary and interest
on capital and taking into account interest on drawings were Rs.
15000/-
Prepare the Capital Accounts of Partners when capitals are
1) Fluctuating
2) Fixed
 Solution
1) When Capitals are Fluctuating :

Anand's Capital Account

Date Particulars Amount Date Particulars Amount

Drawings 6000 Cash 50000

Interest on Drawings 300 Salary 5000
Interest on Capital 3000
50000 x 6
100
PlL Appn A/c (Profit) 10000
Balance c/d 61700 15000 x 2
3

68000 68000

Balance b/d 61700

 Solution
1) When Capitals are Fluctuating :

Balan's Capital Account

Date Particulars Amount Date Particulars Amount

Drawings 5000 Cash 30000

Interest on Drawings 200 Interest on Capital 1800
30000 x 6
100
PlL Appn A/c (Profit) 5000
15000 x 1
Balance c/d 31600 3

36800 36800

Balance b/d 31600

2) When Capitals are Fixed :

Anand's Capital Account

Date Particulars Amount Date Particulars Amount

Cash 50000
Balance c/d 50000

50000 50000
Balance b/d 50000

Anand's Current Account

Date Particulars Amount Date Particulars Amount

Drawings 6000 Salary 5000

Interest on Drawings 300 Interest on Capital 3000
50000 x 6
100
PlL Appn A/c (Profit) 10000
Balance c/d 11700 15000 x 2
3
18000 18000

Balance b/d 11700

2) When Capitals are Fixed :

Balan's Capital Account

Date Particulars Amount Date Particulars Amount

Cash 30000
Balance c/d 30000

30000 30000
Balance b/d 30000

Balan's Current Account

Date Particulars Amount Date Particulars Amount

Drawings 5000 Interest on Capital 1800

Interest on Drawings 30000 x 6
200 100
PlL Appn A/c (Profit) 5000
15000 x 1
Balance c/d 1600 3

6800 6800

Balance b/d 1600

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