<\/span><\/h2>\n\n\n\nThis is the second method of preparing Partner’s Capital Accounts.<\/p>\n\n\n\n
Under Fluctuating Capital Account Method, only one account namely \u201cCapital Account\u2019 is maintained for each partner.<\/p>\n\n\n\n
All transactions of partners such as Interest on\nCapital, Interest on Drawings, Salary, Bonus, Share of Profits or Losses are\nrecorded in this account. As a result, balance in the Capital Account fluctuates\nwith every transaction.<\/p>\n\n\n\n
Capital Accounts having Credit Balances are shown\non the Liabilities Side of Balance Sheet while Capital Accounts having Debit\nBalances are shown on the Assets Side of Balance Sheet.<\/p>\n\n\n\n
Fluctuating capital method is normally followed\nfor maintaining capital Accounts and therefore, in the absence of any\ninstruction, this method should be followed for maintaining the Partner\u2019s\nCapital Accounts.<\/p>\n\n\n\n
This Account records the following items on Debit Side<\/strong>: <\/p>\n\n\n\nWithdrawal of capital <\/li> Closing capital <\/li> Drawings by a partner against profit<\/li> Interest on Drawings<\/li> Share of Loss<\/li> Transfer of any amount to capital\naccount permanently. <\/li><\/ul>\n\n\n\nSimilarly, this Account records the following items on Credit Side<\/strong>: <\/p>\n\n\n\nOpening Capital<\/li> Additional Capital<\/li> Interest on Capital<\/li> Share of Reserves<\/li> Salary, Fees, Commission, Bonus<\/li> Share of Profit<\/li> Transfer of any amount from capital\naccount permanently.<\/li><\/ul>\n\n\n\nFLUCTUATING CAPITAL ACCOUNT<\/figcaption><\/figure>\n\n\n\n<\/span>DIFFERENCE BETWEEN FIXED CAPITAL ACCOUNT AND FLUCTUATING CAPITAL ACCOUNT<\/strong><\/span><\/h2>\n\n\n\n\n BASIS\n OF DIFFERENCE<\/strong>\n <\/td>\n FIXED\n CAPITAL ACCOUNT<\/strong>\n <\/td>\n FLUCTUATING\n CAPITAL ACCOUNT<\/strong>\n <\/td><\/tr>\n OPENING\n AND CLOSING BALANCE\n <\/td> \n Opening\n and Closing Balance remains the same.\n <\/td> \n Opening\n and Closing Balances change due to adjustments in capital accounts.\n <\/td><\/tr> \n NUMBER\n OF ACCOUNTS MAINTAINED\n <\/td> \n Two\n Accounts are maintained for each partner i.e. Fixed Capital Account and\n Current Account.\n <\/td> \n Only\n one account i.e. Capital Account is maintained for each partner.\n <\/td><\/tr> \n FREQUENCY\n OF CHANGE\n <\/td> \n Balance\n in Fixed Capital Account does not change except when further capital is\n introduced or capital is withdrawn.\n <\/td> \n The\n balance changes with every transaction of the partner with the firm.\n <\/td><\/tr> \n RECORDING\n OF THE TRANSACTIONS\n <\/td> \n Transactions\n relating to capitals are recorded in Fixed Capital Accounts and transactions\n for Drawings, Interest on Drawings, Interest on Capital, Salary, and Commission,\n Share of Profit or Loss are recorded in Current Account.\n <\/td> \n All\n transactions whether for Capital, Drawings, Interest on Drawings, Interest on\n Capital, Salary, Commission, Share of Profit or Loss are recorded in Capital\n Account.\n <\/td><\/tr> \n BALANCE\n <\/td> \n It\n always shows Credit Balance in Capital Account.\n <\/td> \n Fluctuating\n Capital Account can also show Debit Balance.\n <\/td><\/tr><\/tbody><\/table>\n\n\n\n<\/span>DIFFERENCE BETWEEN CAPITAL ACCOUNT AND CURRENT ACCOUNT<\/strong> <\/span><\/h2>\n\n\n\n\n BASIS\n OF DIFFERENCE<\/strong>\n <\/td>\n CAPITAL\n ACCOUNT<\/strong>\n <\/td>\n CURRENT\n ACCOUNT<\/strong>\n <\/td><\/tr>\n NEED\n <\/td> \n Capital\n account is maintained in all the cases, whether following Fixed Capital\n Account Method or Fluctuating Account Method.\n <\/td> \n Current\n Account is maintained when Fixed Capital Account is followed.\n <\/td><\/tr> \n BALANCE\n OF ACCOUNT\n <\/td> \n Capital\n Account will always have a Credit Balance when the Fixed Capital Method is\n followed.\n In\n Fluctuating Capital Account Method, it may have either debit or credit\n balance.\n <\/td> \n Balance\n of Current Account may have a Debit or Credit balance.\n <\/td><\/tr> \n NATURE\n <\/td> \n In\n case of Fixed Capital, Capital account balance generally remains unchanged\n from year to year. It changes when further capital is introduced or capital\n is withdrawn by the partners.\n <\/td> \n The\n balance of Current Account changes every year as the all the adjustments are\n done in this account.\n \n <\/td><\/tr> \n CAPITAL\n CONTRIBUTION\n <\/td> \n The\n capital contributed by partners is shown in this account.\n <\/td> \n This\n account does not show the capital contribution.\n <\/td><\/tr> \n TRANSACTIONS\n <\/td> \n Capital\n Account records the transactions such as Opening capital, Additional capital\n and Withdrawal of capital.\n <\/td> \n Current\n account records the transactions such as Drawings, Interest on Capital,\n Interest on Drawings, Salary, Commission, Profit or Loss, etc.\n <\/td><\/tr><\/tbody><\/table>\n\n\n\n