Capital Accounts

A debit balance is written on credit side as balance carried down for balancing. Next year it is brought down on debit side.

Salary commission and profit total twenty thousand are added and drawings twenty five thousand are deducted. Closing capital is ninety five thousand rupees.

Total credit is nineteen thousand and total debit is fifteen thousand. Therefore closing balance is credit four thousand rupees.

In fixed method capital ratio is seen from capital accounts and current account shows regular adjustments. Mixing them may give wrong answer.

Under the fluctuating capital method, a partner’s share of profit is added to the capital (or current) account while drawings are debited. If the profit share is omitted, the capital is not increased by that amount, so the closing capital is understated by the omitted profit share. Option B states the opposite and is incorrect. Option C is wrong because omission of a profit credit does affect capital. Option D is irrelevant since drawings were already debited correctly. Exam tip: when using fluctuating capitals, post profit/interest and drawings directly to capital/current accounts and verify closing balances against the trial balance to catch omissions.

Loss should have been debited but was credited. Therefore the difference from correct position is twice the loss amount.

Interest on drawings should have been debited but was credited. Difference from correct position is double which is four thousand rupees.

When actual capital is more than target capital the excess is adjusted by withdrawal or repayment. If deficient capital is brought in.

When capital is less than target capital the partner has to bring the deficiency. This is the normal way to correct capital ratio.

Direct answer: Option A, permanent additional capital or capital withdrawal occurred. In the fixed capital method, the original capital account is kept unchanged for regular items. Step by step: opening capital is recorded in the capital account; profit share, salary, interest on capital, drawings and interest on drawings are recorded in the current account; only a permanent contribution of extra capital or a permanent withdrawal of capital changes the capital account itself. Therefore, if opening and closing capital differ, a permanent capital transaction is a valid reason. Option A is correct. Option B, profit share, should go to the current account. Option C, normal drawings, should also go to the current account, not reduce fixed capital. Option D, interest on capital, is a regular adjustment and belongs in the current account. The wording ‘closing capital appears changed’ should be understood as a change caused by a permanent capital transaction, not by ordinary adjustments. Exam cue: fixed capital changes only for permanent capital movements.

Normal drawings go to current account and permanent capital withdrawal goes to capital account. This distinction is very important in fixed method.

Under fluctuating method all partner adjustments are made in capital account. Therefore both items debit the capital account.

Personal expense is like drawings and under fluctuating method it is debited to capital account. Bank is credited because payment is made.

Personal premium is not firms expense but partners drawings. Under fixed method it is debited to current account.

Capital and loan are liabilities of different nature. In exams keep partners capital and partners loan separate.

If total capital is equally divided each capital is seventy thousand. A has excess thirty thousand and B has deficiency thirty thousand.

Total capital is one lakh eighty thousand and target capitals are ninety thousand sixty thousand and thirty thousand. B actual and target capital are equal.

Current account is separate and its credit balance shows amount payable to partner. Fixed capital account is not changed by it.

Additions are ten thousand and five thousand while deductions are seven thousand and three thousand. Closing capital will be fifty five thousand rupees.

Interest on capital is normally allowed on positive capital. If there is debit balance read the question terms and period carefully.

Under fixed capital method such appropriation adjustments are made in current accounts when capital is to remain fixed. Posting them to capital account wrongly changes capital.

Partners credit capital is a liability of the firm. Showing it on assets side is a serious presentation error.

In fixed method regular items go to current account and in fluctuating method they go to capital account. Identifying method first prevents wrong posting.

Add capital additional capital profit and salary and deduct drawings and interest on drawings. Closing capital is one lakh ninety four thousand rupees.

To find opening capital deduct additional capital and interest from closing capital and add loss and drawings. The result is one lakh four thousand rupees.