Question

Which account is also prepared along with capital account in fixed capital method?

Hint:

Fixed capital method = fixed capital account + separate current account.

Answer 1

In the fixed capital method, partners' capital remains constant unless additional capital is introduced or withdrawn. To handle daily or periodic adjustments, a separate account known as the Current Account is prepared. Items like interest on capital, interest on drawings, partners' salary, share of profits, and commission are recorded here. This system maintains clarity by separating long-term capital investments from temporary adjustments. Only permanent changes affect the capital account, while all operational changes affect the current account. This approach ensures systematic recording and proper representation of partners' equity.