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Partners' capital and current accounts

Edexcel IAL Accounting · WAC11 The Accounting System and Costing

Each partner has a capital account and, usually, a current account. Whether capital is kept fixed or allowed to fluctuate changes where profit shares and drawings are recorded (spec 1.3.10).

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Fixed and fluctuating capital

Fixed capital: the capital account only changes when a partner introduces or withdraws capital permanently (or on admission or retirement). Interest on capital, salaries, profit shares, drawings and interest on drawings all go to a separate current account.
Fluctuating capital: there is no current account; all these items go straight to the capital account, so it changes every year.

Fixed capital keeps the agreed investment clear (useful for calculating interest on capital) and shows separately what each partner has earned and drawn.

The current account

Credit side (amounts due to the partner): interest on capital, salary, share of residual profit, interest on loans if credited here.

Debit side: drawings (cash and goods), interest on drawings, share of a loss.

A debit balance means the partner has drawn more than their share: they owe the firm. In the statement of financial position, current account balances are shown under capital, with debit balances deducted. In the exam the accounts are usually shown side by side in columnar form, one column per partner.

Current accounts (debits in brackets)	Amira £	Ben £	Chen £
Balance b/d (credit; Chen debit)	2,500	1,200	(800)
Interest on capital	4,000	2,500	1,500
Salary	0	12,000	9,000
Share of residual profit	16,200	10,800	5,400
Drawings	(20,000)	(24,000)	(16,000)
Interest on drawings	(400)	(600)	(300)
Balance c/d	2,300	1,900	(1,200)

Using the appropriation account from the previous lesson

Why a debit balance matters

Chen started with a debit balance and drew heavily. Persistent debit balances mean a partner is taking out money the firm has not earned for them, reducing working capital. The partners might agree to limit drawings or charge higher interest on drawings.

Worked example

Calculate Ben's closing current account balance.

Credits: opening 1,200 + interest on capital 2,500 + salary 12,000 + share 10,800 = 26,500.
Debits: drawings 24,000 + interest on drawings 600 = 24,600.

Answer: Closing balance £1,900 credit.

Key idea: Fixed capital: profit shares, salaries, interest and drawings go to current accounts. Fluctuating capital: they go to the capital account. A debit current account balance means the partner owes the firm.

Check yourself

A partner's current account opens with a credit balance of £3,000. She is credited with interest on capital £2,000, a salary £10,000 and a profit share £18,500. Drawings were £26,000 and interest on drawings £500. Calculate the closing balance.
Show answer
£7000. Credits 33,500 - debits 26,500 = 7,000 credit.
A partner's current account opens with a debit balance of £1,500. Credits for the year total £21,000 and drawings are £24,000. What is the closing debit balance?
Show answer
£4500. Debits 1,500 + 24,000 = 25,500; credits 21,000; debit balance 4,500.
Capital is fluctuating. A partner's capital account opens at £40,000. Share of profit including interest and salary is £28,000 and drawings are £22,000. Find the closing capital.
Show answer
£46000. 40,000 + 28,000 - 22,000 = 46,000.
Under fixed capital accounts, where are a partner's drawings recorded?
- Debit of the partner's capital account
- In the appropriation account
- Debit of the partner's current account
- Credit of the partner's current account
Show answer
Debit of the partner's current account. With fixed capitals, all routine items go to the current account.
What does a debit balance on a partner's current account show?
- The partner has withdrawn more than their share of profits
- The firm owes the partner money
- The partner has made a loan to the firm
- The firm has made a loss
Show answer
The partner has withdrawn more than their share of profits. A debit balance is an amount owed by the partner to the firm.
Which is an advantage of keeping fixed capital accounts?
- It removes the need for an appropriation account
- Partners cannot make drawings
- The capital each partner agreed to invest stays clear for calculating interest on capital
- Profits are always shared equally
Show answer
The capital each partner agreed to invest stays clear for calculating interest on capital. Interest on capital is based on the agreed capital, which stays unchanged.

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Sources

Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting specification (issue 2), Unit 1 and Appendices 6 to 8

Last updated 8 November 2026. Spotted a mistake? Tell us.