Partners' capital and current accounts Cambridge IGCSE Accounting revision
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In plain words
A sole trader has one capital account. Each partner in a partnership has two: a capital account for the money invested for the long term, and a current account for the profit earned and taken out year by year.
6 things to know
- A partner's capital account records the capital the partner has invested. It is fixed, and changes only when capital is permanently added or withdrawn.
- A partner's current account records the partner's share of profit and what the partner has taken out. It changes every year.
- Credit side of a current account: interest on capital, salary, share of profit, and interest on a loan to the business if it has not been paid.
- Debit side of a current account: drawings and interest on drawings, and a share of any loss.
- A credit balance means the business owes the partner profit that has not been drawn. A debit balance means the partner has drawn more than his or her share, and owes the business.
- In the statement of financial position, the capital accounts and the current accounts of each partner are shown separately. A debit balance on a current account is deducted.
Worked example
Ben's current account has an opening credit balance of $1500. For the year he is due interest on capital of $2000, a salary of $12 000 and a share of profit of $14 000. His drawings were $25 000 and interest on drawings was $300. Find the closing balance.
- Credits: 1500 + 2000 + 12 000 + 14 000 = 29 500.
- Debits: 25 000 + 300 = 25 300.
- Closing balance = 29 500 − 25 300 = $4200 credit.
Tips and tricks
- Everything from the appropriation account lands in the current accounts: the same items, on the opposite side.
- Drawings go in the current account, not the capital account, unless the question says the partners keep only capital accounts.
It lands in your notebook with its questions as flashcards.
Partners' capital and current accounts: 5 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
Which item is credited to a partner's current account?
Profit shares, salaries and interest on capital are credits.
Which item is debited to a partner's current account?
Drawings and interest on drawings reduce what the partner is owed.
What does a credit balance on a partner's current account represent?
The business owes it to the partner.
In which account is a partner's long-term investment recorded?
It stays fixed unless capital is added or withdrawn.
Opening balance $2000 credit, share of profit $10 000, drawings $9000. What is the closing balance on the current account?
2000 + 10 000 − 9000.
Quiz
5 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
3 questions, 6 marks. Write your answers on paper, then check them.
Partners' capital and current accounts
Cambridge IGCSE Accounting 0452 · 6 marks · papermunch.org
Name ______________________________ Date ______________
Explain the difference between a partner's capital account and current account.[2]
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The capital account records the fixed amount the partner has invested. The current account records the partner's share of profit and drawings, and changes each year.
A partner's current account has an opening debit balance of $800. Her share of profit is $9500 and interest on capital is $1200. Her drawings were $8400. Calculate the closing balance.[3]
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$1500 credit. −800 + 9500 + 1200 − 8400.
State what a debit balance on a partner's current account means.[1]
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The partner has taken out more than his or her share of the profits, and owes that amount to the business.
Answers: Partners' capital and current accounts
- 1. The capital account records the fixed amount the partner has invested. The current account records the partner's share of profit and drawings, and changes each year.
- 2. $1500 credit. −800 + 9500 + 1200 − 8400.
- 3. The partner has taken out more than his or her share of the profits, and owes that amount to the business.