partnership provides services or sells products in pursuit of profit. These tran

Question

partnership provides services or sells products in pursuit of profit. These transactions are recorded in the appropriate journals and ledger accounts. Many partnerships use accrual accounting and generally accepted accounting principles to maintain their books because GAAP results in better measures of income over time. The partnership may maintain several accounts for each partner in its accounting records.

If you are in a partnership business, what type of account will you maintain and why? Discuss in detail.

Explanation / Answer

A partnership firm may maintain Partner's Capital A/c by any of the two ways namely

1. Fixed Capital A/c

2. Fluctuating Capital A/c

Before understanding these types we must first note down the few transactions which Firm have with its Partners. These are Interst on capital ; salary to partner ; Interst on drawings; Appropriation of Profit or loss ; Additional Capital Introduced ; Drawings or withdrawal of capital.

lets now take each of fixed and fluctuating capital a/c separately.

FIXED CAPITAL ACCOUNT

In fixed capital a/c there are two accounts mainained to record partners capital namely

i) Partner's Capital A/c

ii) Partner's Current A/c

In Partner's current a/c we record all entries like salary to partner ; interst on capital ; interst on drawings ; appropriation of profit and loss a/c

In Partner's current a/c we record just additional capital introduced and drawings .

Putting it simply we can say all revenue items are recorded in Partner's current a/c and all capital items are recorded in Partner's Capital A/c

Fluctuating Capital A/c  

As the name suggests Fluctuating Capital A/c are type of A/c in which Capital keeps on fluactuating thus a single A/C namely Partner's Capital A/c is maintained and all the transactions like salary to partner ; interest on capital ; interest on drawings ; appropriation of P/L a/c ; drawings ; additional capital is recorded in Partner's Capital A/C. Hence, we can say all capital and revenue items are recorded in Partner's Capital A/C

If we have to decide the type of account we should maintain it will depend upon the need of every concern.

If the organisation intends to obtain the information relating to capital a/c balance on account of capital natured trasactions and revenue natured trasactions separately a separate a/c needs to be maintained for recording revenue natured trasactions hece Fixed capital a/c needs to be maintained

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