ICAEW AF · Chapter 12 · Question 8 of 11
Why do many partnerships keep separate capital accounts and current accounts for each partner?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Capital accounts record the fixed capital invested, while current accounts record each partner's share of profits, salaries, interest and drawings
Explanation
Keeping fixed capital accounts shows the long-term capital each partner has agreed to invest, which may be used to calculate interest on capital. Day-to-day movements, such as profit shares, salaries, interest and drawings, go through the current accounts. This separates the permanent investment from the fluctuating balances.
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