Partners’ Capital Account - SS2 Accounting Past Questions and Answers - page 1
What does a partner's capital account in a partnership show?
The partner's share of profits earned by the partnership
The partner's withdrawals from the partnership for personal use
The partner's investment in the partnership
The partner's ownership percentage in the partnership
How is a partner's share of profits or losses in a partnership determined?
Based on the amount of interest paid to the partner
Based on the partner's initial investment in the partnership
Based on the partner's capital account balance
Based on the number of years the partner has been in the partnership
What happens to a partner's capital account if the partnership incurs a loss?
The account is credited with the partner's share of the loss
The account is debited with the partner's share of the loss
The account remains unchanged
The partner must make an additional investment to cover the loss
What is the purpose of calculating interest on a partner's capital account?
To determine the partner's share of profits earned by the partnership
To compensate the partner for the use of their invested capital
To reduce the partner's tax liability
To increase the partner's ownership percentage in the partnership
How is a partner's ownership percentage in a partnership determined?
Based on the partner's initial investment in the partnership
Based on the number of years the partner has been in the partnership
Based on the amount of interest paid to the partner
Based on the partner's share of the total capital of the partnership
What is the difference between a partner's capital account and a partner's current account in a partnership?
A partner's capital account represents the partner's investment in the partnership, while a partner's current account represents the partner's share of profits or losses and any personal transactions made with the partnership.
How does a partner's capital account affect their share of profits in a partnership?
A partner's capital account balance is used to determine their share of profits or losses in a partnership. The higher the balance, the higher the partner's share of profits will be, and vice versa.