Journal entries under fluctuating and fixed capital methods

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on June 22, 2021

Interest on Capital

According to partnership Act, no interest is provided, but if it is agreed among the partners, it will be provided at an agreed rate. Interest on capital is not an expense of the business, that is, it is not deducted from the total income to arrive at the net income. It is a part of the profit sharing scheme. journal entry for interest on capital is as:
journal entry for interest on capital

Drawings

Separate Drawing account for each partner is opened to record his drawings. Generally, maximum limit of withdrawals by each partner is determined. According to partnership act, no interest on drawings is charged unless there is an agreement amongst the partners to the contrary. If the partners agreed for charging interest on drawing, the entry would be made for:
Journal entry for interest on drawings

Partner’s Salary

According to the Partnership Act, no partner is entitled to any salary. But if there is an agreement, a partner may be allowed salary for his work to the firm. Partner’s salary is not an expense of the business, that is, it is not deducted from the total income to arrive at the net income. It is a part of the profit sharing scheme. Journal entry for partner’s salary may be made as under:
Journal entry for partner's salary

Partner’s Commission

Sometimes commission is allowed to the partners rendered by him. The commission is transferred to partner’s account by way of the following journal:
Journal entry for partner's commission

Partner’s Profit or Income

The profit or income of the partnership is distributed among the partners. The following journal entry will be passed to transfer the profit to partner’s account:
Journal entry for partner's profit or income

Partner’s Loss

The loss of partnership is suffered by the partners. The following journal will be made to transfer the loss to partners account:
journal entry for partner's loss

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