Capital Accounts record transactions of owners of a business and typically includes amount invested, retained, and withdrawn from the business. In the case of a partnership firm, there are multiple capital accounts as multiple people own the business. Capital Accounts in a partnership firm can be ofRead more
Capital Accounts record transactions of owners of a business and typically includes amount invested, retained, and withdrawn from the business. In the case of a partnership firm, there are multiple capital accounts as multiple people own the business.
Capital Accounts in a partnership firm can be of two types:
Fixed Capital Account
Fluctuating Capital Account
A fixed Capital Account is one where only non-recurring transactions related to capital accounts are recorded. For example:
Capital introduced
Capital withdrawn/ Drawings
For transactions that are recurring in nature like interest on capital, the interest of drawings a separate account called Partner’s Current Account is created.
Fluctuating Capital Accounts are the ones where there is a single account to record all types of transactions related to the partner’s capital account, whether recurring or nonrecurring.
Fixed Capital Accounts are usually created in cases where there are numerous recurring transactions and partners want to keep a record of the fixed amount invested in the business by all the partners at any point in time.
Fluctuating Capital Account is usually created in cases where the number of recurring transactions is not high or partners want to keep a record of the amount due to all the partners in business at any point in time.
However, the decision to choose what kind of capital account should be implemented in the firm is complete with the partners. They may choose whatever they think is a more suitable fit.
To summarise the difference between the two following table can be used:
Fixed Capital Account
Fluctuating Capital Account
Non-recurring transactions are recorded.
Recurring transactions are recorded.
Created where the number of recurring transactions is high to maintain a separate record.
Created where the number of recurring transactions is low.
Capital Accounts record transactions of owners of a business and typically includes amount invested, retained, and withdrawn from the business. In the case of a partnership firm, there are multiple capital accounts as multiple people own the business. Capital Accounts in a partnership firm can be ofRead more
Capital Accounts record transactions of owners of a business and typically includes amount invested, retained, and withdrawn from the business. In the case of a partnership firm, there are multiple capital accounts as multiple people own the business.
Capital Accounts in a partnership firm can be of two types:
A fixed Capital Account is one where only non-recurring transactions related to capital accounts are recorded. For example:
For transactions that are recurring in nature like interest on capital, the interest of drawings a separate account called Partner’s Current Account is created.
Fluctuating Capital Accounts are the ones where there is a single account to record all types of transactions related to the partner’s capital account, whether recurring or nonrecurring.
Fixed Capital Accounts are usually created in cases where there are numerous recurring transactions and partners want to keep a record of the fixed amount invested in the business by all the partners at any point in time.
Fluctuating Capital Account is usually created in cases where the number of recurring transactions is not high or partners want to keep a record of the amount due to all the partners in business at any point in time.
However, the decision to choose what kind of capital account should be implemented in the firm is complete with the partners. They may choose whatever they think is a more suitable fit.
To summarise the difference between the two following table can be used:
· Capital introduced
· Capital withdrawn
· Interest on capital
· Interest in drawings
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