Partners’ Capital Account - SS2 Accounting Lesson Note

A partner's capital account in a partnership is a record of the partner's investment in the partnership. This account shows the amount of money or assets that the partner has contributed to the partnership, including any initial investment and additional contributions made over time. The capital account also reflects any withdrawals made by the partner from the partnership for personal use, which is known as drawings.

At the beginning of the partnership, each partner's capital account is credited with their initial investment. As the partnership operates, the partner's capital account may change due to several factors such as profits earned by the partnership, losses incurred by the partnership, and the partner's share of those profits or losses based on their ownership percentage.

If the partnership earns a profit, the profits are allocated among the partners according to their ownership percentage and are credited to their respective capital accounts. On the other hand, if the partnership incurs a loss, the losses are shared among the partners based on their ownership percentage and are debited from their respective capital accounts.

The partner's capital account is also used to calculate the amount of interest that the partner is entitled to receive for the use of their invested capital. The interest is usually calculated as a percentage of the partner's capital account balance and is paid to the partner periodically.