The capital account of the partners are normally fixed throughout the partnership.
However, each partner’s profit, loss, drawing, interest on drawing, interest on capital and salary are taken up into a separate Current Account.
Let’s look at a typical Partner’s Current Account:
CURRENT ACCOUNT
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DEBIT SIDE |
CREDIT SIDE
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Drawings- cash, goods ,etc |
Interest on Capital |
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Interest on drawings |
Share of profits |
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Salary of the partner
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(1) Withdrawal/Drawings in the form of CASH |
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Accounting entries: Credit: Cash $11,000 Debit: Withdrawal A/c of A $6,000 Debit: Withdrawal A/c of B $5,000 Being withdrawal of cash by Mr. A & Mr. B |
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(2) Withdrawal/Drawings in the form of GOODS |
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Here, it is important that the partners agree to the valuation used for the withdrawal in the form of goods namely whether it is valued at cost or selling price. Accounting Entries: If the goods are valued at cost: Debit: Partner’s Withdrawal account Credit: PURCHASES a/c Example: Debit: Withdrawal a/c-Mr. A $10,000 Credit: PURCHASES a/c $10,000 Being record of withdrawal of goods at cost price for personal used by Mr. A
If the goods are valued at selling price: Debit: Partner’s Withdrawal account Credit: SALES a/c Example: Debit: Withdrawal a/c-Mr. A $10,000 Credit: SALES a/c $10,000 Being record of withdrawal of goods at selling price for personal used by Mr. A |
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(3) Withdrawal from INVESTMENT |
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Normally, withdrawals are made from profit. However, withdrawal can also be made from Investment with the agreement of all the partners. Preferably, it’s preferable to specify this type of withdrawal in the partnership’s agreement. This type of withdrawal from Investment is not the normal withdrawal like cash or goods. It’s need to be DIRECTLY debited to the partner’s CAPITAL account. (a) Withdrawal from Investment in the form of Cash: Debit: Capital a/c of Mr. A $10,000 Credit: Cash $10,000
(b) Withdrawal from Investment in the form of Goods at Cost Price: Debit: Capital a/c of Mr. A $10,000 Credit: Purchase a/c $10,000
(c) Withdrawal from Investment in the form of Goods at Selling Price: Debit: Capital a/c of Mr. A $10,000 Credit: Sales $10,000
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