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Accounting For Partnership Firm

1. Fixed Capital Account Of Partners

This is one of the way of keeping partners contribution i.e. capital in the books of the firm. The main aim of maintaining fixed capital accounts of partners is to show the amount of original contribution of partners throughout whole year on a constant figure.
Under this method, Capital Accounts are maintained. One of which shows the original capital of the partners without any change throughout the year and another account is opened to record the transactions between the partners and the firm, that is, salary to partners, commission to partners, bonus to partners, interest on capital and drawings made by the partners and so as like in the partners current account.
The capital account of partners showing the original capital could be changed when there is a change in the constitution or when a partner draws money from the business against her/his capital.

2. Fluctuating Capital Account Of Partners

Under this method of keeping partners' capital account only one capital account of partners is opened. This account will record not only the original capital contribution but also the transaction between the partners and the firm. It includes partners drawings, commission, interest on capital, bonus, salary to partners and so on as the case may be. This account is fluctuating whenever there is a presence of any transaction influencing the concerned account. Whenever there is a system of fluctuating capital account no maximum limit can be put on the partners drawings as is maintained in the fixed capital account system.

2 comments:

Jonathan Smith said...

Great post! I actually was just reading online about capital accounts. That's how I came across your very informative article, thank you for sharing this with us and for helping!

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