A partner’s capital account records the amount invested in the business, while the current account records everything that happens to the partner’s share during the year. This distinction matters whenever a question says the capital is fixed.
It is part of partnership accounting and follows allocating profit by agreement.
What does each account record?
Under the fixed capital model, the capital account stays at the agreed amount. It changes only when a partner introduces more capital or takes some out by agreement.
Everything else goes through the current account:
| Entry | Side of the current account |
|---|---|
| Opening credit balance | Credit |
| Salary | Credit |
| Interest on capital | Credit |
| Share of residual profit | Credit |
| Drawings | Debit |
| Interest on drawings | Debit |
| Share of a loss | Debit |
A credit balance means the business owes the partner. A debit balance means the partner has drawn more than has been credited. If the question says capitals are fluctuating, follow its wording and record these items in the single capital account instead.
Worked example
Rahim and Mei run a hardware shop. Their fixed capitals are Rahim RM60,000 and Mei RM40,000.
For the year, profit shares have been worked out as Rahim RM22,000 and Mei RM14,000, and there is no salary or interest.
Opening current accounts are Rahim RM3,000 credit and Mei RM1,500 debit. Drawings were Rahim RM20,000 and Mei RM16,000.
Rahim’s current account
| Item | Debit (RM) | Credit (RM) |
|---|---|---|
| Opening balance | 3,000 | |
| Share of profit | 22,000 | |
| Drawings | 20,000 | |
| Closing balance c/d | 5,000 | |
| Total | 25,000 | 25,000 |
Mei’s current account
| Item | Debit (RM) | Credit (RM) |
|---|---|---|
| Opening balance | 1,500 | |
| Drawings | 16,000 | |
| Share of profit | 14,000 | |
| Closing balance c/d | 3,500 | |
| Total | 17,500 | 17,500 |
Rahim’s closing balance is RM3,000 + RM22,000 − RM20,000 = RM5,000 credit. Mei’s is −RM1,500 + RM14,000 − RM16,000 = −RM3,500, which is RM3,500 debit.
Balance sheet extract: capital RM60,000 + RM40,000 = RM100,000. Current accounts: Rahim RM5,000 added, Mei RM3,500 deducted, net RM1,500. Partners’ funds total RM101,500.
Check: opening current accounts net RM1,500 credit, plus profit RM36,000, less drawings RM36,000, gives RM1,500. ✓
The mistake to watch for
A common slip is to post drawings to the capital account when the question says capital is fixed.
Mistaken entry: Debit Capital account (Rahim) RM20,000; credit Bank RM20,000.
This reduces the fixed capital, so the capital no longer matches the agreement, and the current account balance is overstated.
The correction is to debit the current account. Ask first: “Is this an investment in the business, or a yearly movement of profit and drawings?” Only the first belongs in a fixed capital account.
Check yourself
Try these on paper, then open each answer.
1. A partner’s current account has an opening credit balance of RM2,000. The share of profit is RM9,000 and drawings are RM11,500. Find the closing balance.
Show answer
RM2,000 + RM9,000 − RM11,500 = −RM500.
Closing balance RM500 debit.
2. Under fixed capital, which account is affected by (a) a share of profit, (b) drawings, (c) a partner investing a further RM10,000 by agreement?
Show answer
(a) Current account, credited. (b) Current account, debited. (c) Capital account, credited, because it is a change in the agreed capital.
3. Capitals are RM50,000 and RM30,000. Current accounts are RM4,200 credit and RM1,700 debit. Find partners’ funds.
Show answer
Capital RM50,000 + RM30,000 = RM80,000. Current accounts RM4,200 − RM1,700 = RM2,500.
Partners’ funds RM82,500.
Where this leads next
Next, learn why a partner’s salary belongs in the appropriation account. The double-entry and ledger trainer lets you post these accounts and see the effects, and the percentage-base explorer supports any interest calculations that follow.
If ledger accounts keep ending with figures that look right but sit in the wrong place, our teachers can work through them in online one-to-one Accounting tuition.