Difference between Fixed Capital Account and Fluctuating Capital Account
In a partnership business organization, there are two methods for maintaining a capital account:
1) Fixed Capital Account and
2) Fluctuating Capital Account.
Fixed Capital | Fluctuating Capital |
Partner’s Capital is Fixed | Partner’s Capital is Fluctuating |
Capital Account and Current Account | Capital Account |
Capital Account – Credit Balance Current Account – Credit/ Debit Balance | Capital Account -Credit Balance |
The fixed capital account refers to a type of capital account in which a business has two separate accounts that correspond to distinct types of transactions involving the partners’ capital. The two types of accounts are the Capital account and the Current account.
The capital account pertains to fundamental transactions associated with partners’ capital, while the current account encompasses all other capital-related transactions such as interest on drawings, interest on capital, employee salaries, in addition to the initial investment, infusion of new capital, and withdrawal of capital.
Fluctuating refers to something that lacks stability or undergoes frequent changes. A similar observation can be made regarding the variable capital account. Within the context of the capital account, the capital of the partners experiences continuous fluctuations.
Each partner in the firm will have their own distinct capital accounts. These capital accounts will be credited with the original capital investment made by each partner separately, as well as any additional capital investments made by them throughout the accounting period.
Changes in the capital of the partners are determined by factors such as interest received and draws made by the partners.
Now, let’s examine some of the distinguishing factors between the Fixed Capital Account and the Fluctuating Capital Account.
Difference Between is as Follow:
Basis | Fixed Capital Method | Fluctuating Capital Method |
Meaning | Under Fixed Capital Method, the capital of the partners is considered fixed and all the adjustments related to the partner’s capital are done through a separate account known as Current A/c. | Under the Fluctuating Capital Method, the capital of partners constantly fluctuates and no separate account is made for all the adjustments related to the partner’s capital. |
No. of Accounts | Two accounts are maintained under the fixed capital method, i.e., Capital Account and Current Account. | In Fluctuating Capital Account, it consists of only one account known as the Capital Account. |
Presentation in Balance sheet | Capital Account and Current Account both are shown in the fixed capital account method. | In this method, only the Capital account appears on the balance sheet. |
Adjustments | All the adjustments related to the partner’s capital are done through the Partner’s Current Account except for the permanent withdrawal of capital and additional capital. | In this method, all the adjustments are done in the partner’s capital account itself. |
Balance | Capital Account always shows credit balance whereas Current Account can either show credit or debit balance. | Capital Account always shows a credit balance. |
Partnership Deed | In the Partnership Deed, the fixed capital account method must be specified particularly. | In the partnership deed, it is not mandatory to mention about this. |
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