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When does the capital account of a partner not show a debit balancein spite of regular losses incurred by the firm?

Posted by Rahul Sk 8 years, 10 months ago

CBSE > Class 12 > Accountancy

2 answers

Naveen Sharma 8 years, 10 months ago

Ans. In Brief there are only two explanations-

1) The capital system followed is fixed:

Under this system two accounts are maintained, those are Capital A/c and a Current A/c.
All losses are debited to the Current A/c and the Capital account only has entries if capital permantly withdrawn or added in the year.
Here, the capital account cannot show a debit balance as the owner cannot withdraw more than what has has contributed.

2) The capital system followed is fluctuating:

Under this system, only capital account is maintained.
All the losses are debited to this account only and it is possible that this account has a debit balance.
However, the accumulated profits/reserves of the firm might be huge or the losses incurred might be insignificant compared to the profit earned by the firm/ reserves kept. So, these reserves help in meeting the losses and the owner’s capital account can still show a credit balance.

Naveen Sharma 8 years, 10 months ago

Ans.When the capital accounts of partners are fixed, they always show a Credit Balance.

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