Q.Distinguish between the Fixed Capital Method and the Fluctuating Capital Method of maintaining partners' capital accounts.

The two methods record exactly the same underlying facts about a partner's stake in the firm — they only differ in how many accounts are used to record them and whether the capital figure itself is allowed to move.

Fixed Capital Method

Each partner has two separate accounts: a Capital Account, which records only capital actually contributed (and any further capital introduced or permanently withdrawn), so it normally stays unchanged from year to year; and a Current Account, through which every other item — interest on capital, salary, commission, share of profit, drawings, and interest on drawings — passes each year. The Current Account can carry either a debit or a credit balance and is shown separately in the Balance Sheet.

Fluctuating Capital Method

There is only one Capital Account per partner, through which every item is recorded: opening capital, additional capital, interest on capital, salary, share of profit, drawings, and interest on drawings. Because everything passes through the same account, its balance genuinely fluctuates from year to year. This is the method applied by default whenever the partnership deed does not specifically require capitals to be kept fixed.

Distinction

A common error is assuming the Fixed Capital Method never changes at all — it can change, but only through a fresh capital introduction or a permanent capital withdrawal, never through routine items like interest, salary or drawings, which always go to the Current Account instead. Students also sometimes wron …