Under Fixed Capital Method, the capital balances of the partners remain unchanged. It changes only when any amount of capital is withdrawn or additional capital is introduced during the accounting year by the partners. The fixed capital balances remain unaffected by the items of appropriation such as interest on capital, share of profit, commission, salary, etc. As per the Fixed Capital Method, two accounts are prepared.
Partner’s Capital Account: This account records only the opening capital balances and the closing capital balances of the partners. Besides this, it also records those transactions that are related to introduction and withdrawal of capital. The introduction takes place in form of bringing in of fresh capital by the partners, while withdrawal of capital happens in form of drawings out of capital.
If fresh capital is introduced during an accounting year, then it is credited to the Partners’ Capital Account as ‘Cash/Bank Account’. On the other hand, if any capital is withdrawn by the partners, then it is shown on the debit side of the capital account as ‘Cash/Bank Account’. No other transactions such as, Partners’ Salary, Interest on Partners’ Capital, Commission, etc. is recorded in this account. This account always end-up showing credit balance as ‘Balance c/d’, which is shown on the Liabilities side of the Balance Sheet of the Partnership firm.
Partners Current Account: The next account that is prepared after Partners’ Capital Account under the Fixed Capital Account Method is Partners’ Current Account. This account begins with the opening credit balance on the credit side of the current account (or with the opening debit balance on the debit side of the current account). This account does not record any transactions related to the capital account such as, opening and closing capital account balances, drawings and introduction of fresh capital.
This account majorly records transactions such as partners’ salary, commission to partners, interest on drawings, bonus to partners, profit or loss of the Profit and Loss Appropriation Account, etc. Unlike Partners’ Capital Account (under Fixed Capital Method), the Partners’ Current Account can either show either debit closing balance or credit closing balance. The credit closing balance is shown on Liabilities side, while the debit closing balance is shown on the Assets side of the firm’s balance sheet.
The balance sheet is the last financial statement that is prepared by any organization. This statement helps to ascertain the true financial position of an enterprise at the end of an accounting period
Profit and Loss Account
A profit and Loss Account is the second financial statement prepared by an organization. This account is prepared to ascertain the net results of a firm in form of net profit earned or net loss incurred during an accounting period.
Accounting software is an integral part of the computerized accounting system. The accounting software should be selected after considering the level of skill and proficiency of the accounting professionals.
What are Accounting Reports?
Accounting Reports: When the collected data is processed and manipulated in a useful sense that can be understood by the users without any ambiguity, then it becomes information.
Transaction Processing System
Transaction Processing System (TPS) refers to a computerized system that records, processes, validates, and stores routine transactions that occur in various functional areas of a business on daily basis.