There are two ways of maintaining a capital account in a partnership form of business organisation which are 1) Fixed Capital Account and 2) Fluctuating Capital Account.
Fixed capital account is that form of capital account where the business maintains two different accounts which are related to the different kinds of transactions that take place in the capital of the partners. These two accounts are 1) Capital account and 2) Current account
Capital account is related to the basic transactions related to the partners capital whereas the current account is related to all the other capital related transactions like interest on drawings, interest on capital, salary to employees apart from initial investment, addition of new capital and withdrawal of capital.
Fluctuating means one that is not stable or one that is changing frequently. The same can be said about the fluctuating capital account. Under the fluctuating capital account, the capital of the partners keeps on fluctuating.
The partners of the firm will have separate capital accounts and the capital accounts of each partner will be credited with the initial capital investment that is made individually by them and any additional capital investment done by them during the accounting period.
There will be increase or decrease in the capital of the partners which is associated with the activities such as interest received and drawings by partners.
Let us look at some of the points of difference between the Fixed Capital Account and Fluctuating Capital Account.
|Fixed capital account is that form of capital account where the business maintains two different accounts which are related to the different kinds of transactions that take place in the capital of the partners||Fluctuating capital account is that form of capital account where the capital of the partners keep on fluctuating|
|Fixed capital account has two accounts which are capital account and current account||Only one account that is capital account|
|This type of capital account remains constant||This type of capital account fluctuates|
|Needs to be mentioned specifically in partnership deed||No need to be mentioned in partnership deed|
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