journal and ledger for capital of partnerships

1. Journal and ledger account entries for
recording partnerships
Section 8 Objective 5
prepare journal entries and
ledger accounts to record the
capital of partnership

2. Journal and ledger account
entries
An essential feature of doing records for a
partnership company is that
• Each partner contributes capital
• The amount of capital invested into the
company by each partner need not be
equal however, the amounts must be
agreed to by all the partners

3. Journal and ledger account entries
• Entries to record the capital introduced by
partners
• Partners on starting a company may invest
cash or non cash resource to start a business
• For recording the investment made by each
partner, there are two options that can be
used to record capital introduced by partners
in the general ledger. The options are
• To operate a fixed capital plus separate current
accounts or in columnar form
• Or operate separate fluctuating capital accounts or
columnar form

4. • The fixed capital account for each partner
shows the yearly amount of capital invested
into the business.
• A separate current account is opened for
each partner. The current account for each
partner show the
• Each partner drawings
• Interest charged on drawings for each partner
• Salaries for active partners
• Profits or losses made or absorbed by each
partner
• Interest on capital each partner is entitled to
Capital accounts
Fixed and current

5. Capital accounts
fluctuating
• In this format, the amount invested is
shown as well as
– Distribution of profits
– Drawings
– Interest on drawings
• Using this method, the capital accounts
will change each year

6. Implications using fixed and
fluctuating capital accounts
• The use of separate fixed capital and
current accounts is preferred to fluctuating
capital accounts because
• When a partner(s) are taking out greater
amounts than the share of profits that they
are entitled to. It is shown in records as a
debit balance on the current account.
• The debit balance acts a warning to the
partnership

7. Format of a partner
fixed capital account
Year $
Date Bank/non cash
resource xxx

8. Format of a
partner current account
Year $ Year $
Interest on drawings xxx Balance b/d xxx
Drawings xxx Interest on capital xxx
Balance c/d xxx Share of profit xxx

10. • Capital accounts opened are shown as
fixed entries in the separate capital
account
• If desired the capital account can be
shown in columnar form as well
• The appropriation account entries are
transferred to each partner current
accounts

11. Format of a partner
fluctuating capital account
Year $ Year $
Interest on drawings xxx Bank xxx
Balance c/d xxx Share of profits xxx
Interest on capital xxx

12. Journal entry to record capital
Dr cash
Dr non cash item (if any for example
building)
Cr (each partner capital account for the
sum total of the debit entries)

13. Sample journal entry
to record capital invested

14. Sample columnar ledger account entry to
record fluctuating capital account