1.1.C.04 Capital account of a business partnership

Usage

This definition applies to all payments.

Definition: capital account

The capital accounts of a business partnership record the capital contribution of each partner to the net assets of the partnership. The accounts may either:

  • fluctuate to record changes in the net assets, OR
  • remain fixed in accordance with the partnership agreement.

If the capital accounts are FIXED, a separate current account is kept for each partner. The partnership's current account then records the changes in the equity of each partner.

Example: Changes in equity can be caused by profit or loss, drawings, interest on capital and interest on drawings.

The total of a partner's capital account is the RECORDED net asset value of the business:

  • the book value, MINUS
  • liabilities.

Explanation: The CURRENT asset value of a business is seldom equal to the RECORDED net asset value of the business because of the liabilities most businesses have.

Definition: assets

For the purposes of capital accounts, assets include the partnership's:

  • real estate,
  • equipment, and
  • livestock.
Last reviewed: 1 July 2016