SS2 First Term Financial Accounting Lesson Note – Capital Account

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WEEK 4                                                                     

TOPIC:           CAPITAL ACCOUNT

CONTENTS:

1. Fixed capital account
2. Fluctuating capital account

• Worked example

Sub-Topic 1:    FIXED CAPITAL ACCOUNT

The amount put into the business by each partner will not change. The capital will remain fixed. In order to preserve the capital intact, a current account will be prepared. The current account will be debited with interest on drawings, drawings and credited with interest on capital, share of profit and partners salary.

Example: capital and current account of James and Joy given in week 5 above:

Dr                                            Capital account                                                                    Cr

Details	James	Joy	details	James	Joy
			Balance b/d	2,000	6,000

 

Dr                                           Current account                                                                    Cr

Details	James	Joy	Details	James	Joy
Drawings Interest on drawings     Balance c/d	2,000 50     600   2,650	2,000 100     400   2,500	Interest on capital Share of profit salary	100 2,550         2,650	300 1,700 500       2,500

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