A Capital Account is an account that shows the owner's equity in the firm and a Partner's Capital Account is an account that shows the partner's equity in a partnership firm. Partner’s Capital Account includes transactions between the partners and the firm. Examples of such transactions are: CapitalRead more
A Capital Account is an account that shows the owner’s equity in the firm and a Partner’s Capital Account is an account that shows the partner’s equity in a partnership firm.
Partner’s Capital Account includes transactions between the partners and the firm. Examples of such transactions are:
- Capital introduced in the firm
- Capital withdrawn
- Interest on Capital
- Interest on Drawings
- Profit or loss in the financial year, etc.
When partners are given interest on their capital contribution in the firm, it is called on Interest on Capital.
In case the partnership firm does not have a Partnership Deed, the Partnership Act does not include a provision for Interest on Capital. However, if the partners want they can mutually decide the rate of Interest on Capital.
Interest on Capital is calculated on the opening capital of the partners and is only allowed when the firm makes a profit, that is, in case a firm incurs losses, it cannot allow Interest on Capital to its partners.
Example:
In a partnership firm, there are two partners A and B, and their capital contribution is Rs 10,000 and 20,000 respectively. Interest on capital is @ 10% p.a. The Interest on Capital for both the partners is:
Partner A- 10,000 * 10/100 = 1,000
Partner B- 20,000 * 10/100 = 2,000
The journal entry for Interest on Capital is an adjusting entry and is shown as:
| Interest on Capital A/c                                                         Dr. | 3,000 | |
|                                     To A’s Capital a/c | 1,000 | |
|                                     To B’s Capital A/c | 2,000 |
- Partner’s Capital Account is credited because it is credit in nature and interest on capital is an addition to the account.
- Interest on Capital Account is debited because it is an expense account.
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Ledger Folio A ledger folio, in simple words, is a page number of the ledger account where the relevant account appears. The term 'folio' refers to a book, particularly a book with large sheets of paper. In accounting, it's used to maintain ledger accounts. The use of ledger folio is generally seenRead more
Ledger Folio
A ledger folio, in simple words, is a page number of the ledger account where the relevant account appears. The term ‘folio’ refers to a book, particularly a book with large sheets of paper. In accounting, it’s used to maintain ledger accounts.
The use of ledger folio is generally seen in manual accounting, i.e the traditional book and paper accounting as it is a convenient tool used for tracking the relevant ledger account from its journal entry. Whereas, in computer-oriented accounting (or computerized accounting), it’s not really an issue to track your relevant ledger account.
Ledger folio, abbreviated as ‘L.F.’, is typically seen in journal entries. The ledger folio is written in the journal entries, after the ‘date’ and ‘particulars’ columns. It is really convenient when we’re dealing with and recording a large number of journal entries. As we will be further posting them into ledger accounts, thus, ledger folio comes in as a really useful component of journal entries.
Example
We’ll look at how the ledger folio column is used while recording journal entries.
We can find the relevant ledger accounts on the page numbers of the book as mentioned in the above entries, i.e. the cash and sales account on page – 1 whereas, the purchases and sundry creditors on page – 2 of the relevant ledger book.
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