AS-L19 — Current Accounts & Capital Accounts
Understanding how partnership capital and current accounts are maintained and adjusted.
Learning Objectives
By the end of this lesson students should be able to:
• distinguish between capital accounts and current accounts
• understand fixed and fluctuating capital systems
• record partnership appropriations in current accounts
• prepare current account entries correctly
• answer examination-style questions
Concept Framework
What are Capital Accounts?
Capital accounts record the long-term investment made by partners into the partnership business.
What are Current Accounts?
Current accounts record regular adjustments relating to partners, including:
• profit shares
• drawings
• interest on capital
• partner salaries
• interest on drawings
CORE RULES
| Item | Current Account Treatment |
|---|---|
| Interest on Capital | Credit |
| Partner Salary | Credit |
| Share of Profit | Credit |
| Drawings | Debit |
| Interest on Drawings | Debit |
TRANSACTION LOGIC
| Item | Current Account Treatment |
|---|---|
| Interest on Capital | Credit |
| Partner Salary | Credit |
| Share of Profit | Credit |
| Drawings | Debit |
| Interest on Drawings | Debit |
Worked Examples
Example 1 — Interest on Capital
Ali receives interest on capital £1,200.
Current Account Entry:
Credit Ali Current Account £1,200
Example 2 — Drawings
Sara withdraws goods worth £800.
Current Account Entry:
Debit Sara Current Account £800
Example 3 — Current Account Balance
Credits:
Profit Share £6,000
Interest on Capital £1,000
Debits:
Drawings £2,500
Closing Balance:
£7,000 − £2,500
= £4,500 credit balance
📌 Additional questions are available in the 🎯 Question Papers + YouTube Explanation section.
Students should practise explanation questions regularly to improve examination performance.
Enrolled students may submit questions from recognised textbooks, past examination papers, or other academic material for expert clarification through the Student Doubt Support facility.
Structured Practice
Level 1 – Concept Check
Define capital account
Define current account
Level 2 – Application Practice
Explain why drawings are recorded in current accounts rather than capital accounts.Explain why partner salaries are not treated as business expenses.
Level 3 – Examination Style Question
Ali’s current account contains:
Interest on Capital £800
Salary £2,000
Drawings £1,200Calculate the closing current account balance.
(3 marks)
📌 Additional structured questions are available in the 🎯 Question Papers + YouTube Explanation section.
∗ Additional structured questions are available in the Question Papers and YouTube Explanation section. Students should practise regularly and review video explanations for procedural clarity.
Enrolled students may submit questions from recognised textbooks, past examination papers or other genuine academic material for expert clarification through the Student Doubt Support facility.
Proficiency Check
Learn → Unlearn → Relearn
1. Can you distinguish between current and capital accounts?
2. Can you identify debit and credit entries correctly?
3. Can you calculate current account balances accurately?
If unsure, revise the worked examples.
Detailed Activity Solutions
Solution to Level 3 question
Level 3 Answer:
Credits:
£800 + £2,000
= £2,800
Less Drawings:
£2,800 − £1,200
= £1,600 credit balance
How This Topic Appears in the Examination
This topic commonly appears as:
• preparation of current accounts
• partnership adjustments
• calculation of balances
Examiners assess:
• correct classifications
• accurate entries
• proper balance calculations
Self-Assessment Checklist
I understand capital accounts
I understand current accounts
I can record partnership adjustments correctly
I can calculate current account balances accurately
I can answer exam questions confidently
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