Capital Accounts: Fixed and Fluctuating

A 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.

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.

Fixed Capital Account Method

Under this method, the firm prepares 2 accounts which show different transactions related to the capitals of the partners.

A firm prepares Fixed Account with very basic capital related transactions. Unlike the Capital account, under these repetitive capital related transactions does not affect the Capital balance. Like, Salary of employees, commission for employees, interest on capital, interest on drawings, etc.

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