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chapter 26.docx

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University of Calgary
ACCT 301

Chapter 26 Capital Accounts When a partnership is formed each partner puts in some capital to the business, and each is recorded separately in a series of capital accounts, so that a record I skept of how much is owed to whom. Current Accounts each partner will also have a current account, which is used to record the profits retained in the business by the partner and it differs from the capital account in that the later remains ‘static’ from year to year whereas a current account is continually changing due to the making of profits and drawings. Basically any income transferred to the current account, is a credit entry, and any expense charged to the current account is a debit entry. Interest on Capital a partnership agreement also provides for interest on the balance of the partner’s capital account NOT the current account. The interest received by each partner is transferred to the current account. Drawings whenever a partner makes any drawings, the transaction is recorded in a drawings account as with sole traders. Yet, in addition, at the year end the drawings will be cleared to the current accounts. Loan to the Partnerships Partners may loan the business some money, whilst earning interest from the business too. This loan is treated as a current or
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