Capital accounts of partners

CAPITAL ACCOUNTS OF THE PARTNERS Capital accounts of the partners can be maintained in two ways; 1) Fixed Capital Accounts 2) Fluctuating Capital Accounts 1) Fixed Capital Accounts Under this method the capital invested by the partners remains constant unless additional capital is brought in or some part of the existing capital is withdrawn permanently by agreement. Entry is made in the Capiatl accounts only to record the capital inroduced or withdrawn permenently by the partners . All the other transactions relating to drawings, interest on capital or drawings, salary…

Profit and loss appropriation account

  Transaction of the partnership firm are recorded according to the Double Entry System of accounting. For recording the transactions the procedure followed is similar to that of the Sole Proprietorship. Starting from Journal, Cash Book and other Subsidiary books viz. Purchases book, Sales book etc. Ledger and trial balance are prepared and at the end of the accounting period Profit and Loss account and Balance sheet are prepared to know about the Profitability and the financial position of the firm. Till here there is no difference between the accounts…

Change in the profit sharing ratio of the existing partners

Sometimes it is decided by the existing partners to change their Profit sharing ratio. This change may result in gain to a few partners and loss to others. The partners who are going to gain due to this change in the profit sharing ratio should compensate the sacrificing partner/partners. Hence for this purpose a few adjustments have to be made in the books of the firm. These adjustments are:- 1) Adjustment for goodwill; 2) Revaluation of assets and liabilities; 3) Adjustments of reserves, accumulated profits and losses if any etc….