Capital Accounts

Additional capital is a permanent capital change. Therefore even in fixed capital method it is recorded in capital account.

Withdrawal of capital is a permanent reduction in a partner’s capital. Under the fixed capital method, permanent changes (additions or withdrawals of capital) are recorded in the Capital Account, so capital withdrawal affects the Capital Account. Closest distractors: Sales and Trading accounts relate to revenue and inventory/gross profit, and Bills Payable is a liability account — none record permanent capital reduction. Exam tip: Distinguish 'drawings' (often recorded in a Current/Drawings account) from 'capital withdrawal' (affects Capital Account under fixed capital method).

A partner’s share of profit is a claim payable to the partner, so it increases the partner’s current (or capital) account and is therefore credited. In partnership accounting the appropriation of profit is entered on the credit side of the partner’s current account. The closest distractor, the debit side, is incorrect because debits normally record drawings or expenses. Exam tip: remember the simple rule — profit/share of profit → credit; drawings → debit.

A partner's share of loss reduces their claim (balance), so it is recorded on the debit side of the current account. The current account shows the partner’s share of profit/loss, drawings and other adjustments — profits are credited and losses debited. The closest wrong option is the credit side, because credit entries indicate increases (e.g., profit), not decreases. Exam tip: remember the rule — profit = credit, loss = debit for current accounts.

Regular adjustments in current account indicate fixed capital method. Capital account remains separately fixed.

A partnership can maintain capital accounts in two common ways. Under the fluctuating capital method, one capital account is used for each partner, and its balance changes whenever profit, loss, drawings, interest, or other adjustments are recorded. Therefore, profit increases the capital balance, while drawings reduce it. Seeing both profit and drawings in the capital account is a clear sign of this method.

Under the fixed capital method, the original capital generally remains unchanged. Profit, drawings, and similar items are usually entered in a separate current account instead. The other options are unrelated to partnership capital accounting: bank reconciliation compares bank records, and stock method concerns inventory. Hence option A is correct.

Additional capital is added to opening capital. Eighteen thousand plus seven thousand gives twenty five thousand.

Withdrawal reduces the partner’s capital. So the remaining capital is \(32000-2000=30000\) rupees.

The governing concept is that profit increases a partner’s capital, whereas drawings decrease it. To find the net increase, subtract the drawings from the profit share: ₹12,000 − ₹5,000 = ₹7,000. Therefore option A is correct, assuming there is no opening-balance issue, salary, interest, commission, or other adjustment. Option B adds both amounts and wrongly treats drawings as an increase. Option C states only the reduction, while option D states only the increase; neither gives the net effect. The calculation measures change, not the closing capital itself.

Interest on capital increases and loss decreases capital. Increase of one thousand and decrease of three thousand gives net decrease of two thousand.

Interest on drawings is charged to the partner and becomes income of the firm. In accounting the partner's current/capital account is debited while the 'Interest on Drawings' account (income) is credited and later transferred to Profit & Loss. Therefore the partner's account is debited. Option B (Credit) is incorrect because credit would represent the income side, not the amount charged to the partner; the partner's liability increases and so his account is debited. Exam tip: Memorise—charges/amounts recoverable from a partner are posted by debiting the partner's account and crediting the income/Interest on Drawings account.

Interest on capital allowed to a partner is treated as an appropriation of profit and is credited to the partner's capital/current account. In the books, Profit & Loss Appropriation (or P&L distribution) is debited and the partner's account is credited by Rs. 800. Option B (Debit) is wrong because debiting the partner would reduce their balance; interest on capital increases the partner's account. Exam tip: if interest is 'allowed' to partner → credit the partner; if interest is 'charged' (e.g., on drawings) → debit the partner.

Drawings account is prepared temporarily. At year end it is closed to partners capital or current account.

To balance an account a credit balance is written on debit side as balance carried down. It goes to liabilities side.

A credit closing balance becomes opening credit balance next year. Therefore it is brought on credit side.

A debit closing balance becomes debit opening balance next year. It may show amount recoverable from partner.

Direct answer: Option A, because each partner has a separate capital account. In a partnership, the business receives capital from more than one person. The amount contributed, later profit, drawings and other adjustments must be known separately for each person. Therefore accounts are identified by names such as A’s Capital Account, B’s Capital Account and C’s Capital Account. Option A is correct because separate names prevent one partner’s balance from being confused with another’s. Option B is wrong: several partners require separate records, not only one account. Option C is wrong: a bank does not decide the names of partners’ capital accounts; this is an accounting requirement. Option D is wrong: customers are unrelated to the reason partners’ capital accounts are separately named. The same principle applies to current accounts when the fixed-capital method is used. Memory cue: one partner, one identifiable capital balance.

Subtract A capital from total capital to get B capital. Eighty thousand minus forty five thousand equals thirty five thousand.

The governing concept is proportional division using a capital ratio. A:B=4:1 means A’s capital represents four equal ratio parts, whereas B’s capital represents one equal part. Since A’s four parts total ₹40,000, the value of one part is ₹40,000÷4=₹10,000. B has exactly one part, so B’s capital is ₹10,000. Hence option A is correct. A quick verification is 40,000:10,000=4:1, which agrees with the given ratio. Option B would make the ratio 2:1, option C would make it 1:1, and option D would make A:B=4:5, so none of those preserves the stated relationship.

Total capital is found by adding all partners capitals. Ten thousand plus fifteen thousand plus twenty five thousand equals fifty thousand.

Interest on capital is credited to partners' capital accounts as an appropriation. If that entry is omitted, the capitals will be understated (appear lower) by the amount of interest omitted. Option B is incorrect because omission cannot increase capital; C is incorrect because omitting a credit changes the balance; D is incorrect because the capital does not become zero — it is merely understated. Exam tip: always verify appropriation entries (interest on capital, interest on drawings, salaries) when checking partner capital balances.

Drawings reduce a partner's capital because they represent amounts withdrawn for personal use. If drawings are not recorded, the reduction is missed and the capital is overstated (appears higher than actual). The closest distractor B is incorrect: omission does not make capital lower. Exam tip: always verify drawings entries in the partner's capital/current account to catch omission errors quickly.

In a partnership the partner's share of profit is credited to their capital/current account, increasing their claim. If that credit is omitted, the partner's account will be understated and thus show a lower balance. Distractor B is incorrect because omission cannot increase the balance; C is incorrect unless the partner already had zero balance; D is incorrect because bank balance is a separate account and is not directly increased by failing to record profit share. Exam tip: when reconciling partner accounts always verify profit allocations and drawings entries together.

A partner’s share of loss is debited to his capital account, reducing the capital balance. If that debit entry is omitted, the reduction is not recorded and the capital balance will be overstated (appear higher). The closest distractor B is incorrect because omission removes the decreasing entry — it does not make the balance lower. Option C would only occur if the unrecorded loss exactly equals the capital, which is not generally the case. Option D is irrelevant: omission of a partner's loss does not double profit; it distorts the capital balances. Exam tip: Reconcile profit/loss appropriation entries with capital accounts when checking for omissions or errors.

Capital account clarifies a partners investment position. It shows each partners claim at year end.