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Difficulty: EasyFixed and Fluctuating Capital Accounts

When a partnership firm operates the fixed capital account system, in which account is a partner's share of net profit credited at the end of the accounting period?

  1. Partner's Current AccountAnswer
  2. B
    Partner's Capital Account
  3. C
    Profit and Loss Account
  4. D
    Drawings Account

Answer

Partner's Current Account
Under the fixed capital account system, the partner's capital account maintains a constant balance containing only initial capital, permanent additions, or permanent capital withdrawals. All recurring operational allocations such as profit shares, partner salaries, interest on capital, and drawings are credited or debited to the partner's current account.

Step-by-Step Solution

1
Identify the accounting method specified in the prompt
The firm uses the fixed capital account method.
Partnership accounting distinguishes between fixed and fluctuating capital methods.
2
Apply the rule of the fixed capital account method
The Capital Account balance is kept fixed, while all annual appropriations (profit share, salaries, drawings, interest) are posted to the Current Account.
This maintains the initial capital structure distinct from accumulated profits and appropriations.
3
Determine the crediting account for share of profit
The share of profit increases the partner's equity, so it is credited to the Partner's Current Account.
Crediting the current account reflects the allocation of profits available to the partner without altering original capital.

Key Concept

Fixed Capital Accounts Method
Estimated Time:45s
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Topics

Fixed and Fluctuating Capital Accounts

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