Question

Difference between capital account and current account

Answer 1

Under the fixed capital method, the capitals of the partners shall remain fixed unless additional capital is introduced or a part of the capital is withdrawn as per the agreement among the partners. Therefore, the following two accounts are maintained -

1. Partners' Capital A/c - The partners’ capital accounts will always show a credit balance, which shall remain the same (fixed) year after year unless there is any addition or withdrawal of capital. The partners’ capital accounts shall always appear on the liabilities side in the balance sheet

2. Partners' Current A/c - All items like share of profit or loss, interest on capital, drawings, interest on drawings, etc. are recorded in a separate accounts, called Partner’s Current Account. The partners’ current account’s balance shall be shown on the liabilities side, if they have credit balance and on the assets side, if they have debit balance.