Glossary
Capital account
In a partnership, the account showing each partner's fixed, long-term investment in the business.
What it means
An account recording a partner's permanent capital contribution, kept fixed except when capital is formally introduced or withdrawn.
Example
Two partners each pay in RM50,000, so each capital account shows a RM50,000 credit balance.
Why it matters
Keeping capital fixed separates long-term investment from year-to-year profit shares and drawings.
In practice
In a partnership with fixed capital accounts, the capital account holds only each partner's agreed long-term investment. It normally stays the same from year to year. It appears in the capital and reserves section of the statement of financial position, one column per partner. It carries a credit balance, because the firm owes that amount back to the partners.
If Aisha puts in RM50,000 and Ben RM30,000, their capital accounts show RM50,000 and RM30,000. These figures change only when new capital is paid in or capital is formally withdrawn.
Do not confuse the capital account with the current account. Profit shares, interest on capital, salaries and drawings are kept out of the capital account and go through the current account. This keeps the capital figures a clean record of permanent investment, so it is easy to see how much each partner has committed for the long term.
If partnership accounts feel like a lot of separate accounts, one of our teachers can show you where each item goes with a worked example. Book a trial class.
Related terms
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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