how to prepare capital account?
Answers
Answer:
Capital Account is a general ledger account which shows some of the special transactions like proprietor’s investment in his own business, the aggregate amount of earning, expenses of companies, etc. There are many more transactions which affect the Capital. Like: Interest on Capital, Interest on Drawings, Salaries to the Partners, Commission for the Partners, etc. These values are put in Profit and Loss Appropriation Account and at the same time credited or debited to their respective Capital Accounts.
Methods of Capital Account Creation
Fluctuating Capital Account Method
Fixed Capital Account Method
Fluctuating Capital Account Method
Firstly, fluctuate means anything having unpredictable ups and downs. Hence, under this method, the Capital of each Partner keeps on changing from time to time.
In a firm, there is a single account under the name “Capital” which shows all the necessary information about the different transactions related to the capital. It mostly starts with a credit amount of the capital invested by the partner in the initial time of the business.