1.1.C.04 Capital account of a business partnership
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
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.
For the purposes of capital accounts, assets include the partnership's:
- real estate,
- equipment, and