Exam layout
Partners' current account format
A partner's current account collects profit share, salary, interest on capital, drawings and interest on drawings. Its balance can be a credit or a debit.
The standard format
- Credit: share of profit
- Credit: salary and interest on capital
- Debit: drawings
- Debit: interest on drawings
- Balance carried down per partner
Filled example
| Profit share | RM 12,000 |
| Interest on capital | RM 2,500 |
| Total credits | RM 14,500 |
| Drawings | RM 8,000 |
| Interest on drawings | RM 200 |
| Balance c/d | RM 6,300 |
Notes
- A debit balance means the partner owes the business.
- Everything except permanent capital passes through here.
- Balances appear in the capital section of the statement of financial position.
Building and reading this format
The current account records the busy, year-to-year dealings between each partner and the business. Under the fixed capital method, each partner has a capital account for the permanent stake. They also have a current account for the running balance of what they have earned but not yet withdrawn.
Almost every error in this topic comes from putting an item in the wrong one of the two.
The account is usually shown in columns, one per partner, and has debit and credit sides. The credit side records amounts the business owes the partner: the share of residual profit, interest on their capital, and any partnership salary.
The debit side records amounts that reduce this: their drawings for the year and any interest charged on drawings. Building the account follows directly from the appropriation account.
Start with the opening balance. It is usually a credit balance, meaning the business owes the partner. It can be a debit balance if the partner overdrew earlier.
From the appropriation account, bring across the partner's salary, interest on capital, and share of remaining profit, all on the credit side. On the debit side, enter drawings and interest on drawings.
For example, Chen has an opening credit balance of RM5,000, a salary of RM12,000, a profit share of RM18,000, and drawings of RM20,000. His credit side totals 5,000 + 12,000 + 18,000 = RM35,000.
His debit side is RM20,000. His closing credit balance is RM15,000, which is carried into the statement of financial position.
A rising credit balance means the partner is earning more than they withdraw, which leaves profit in the business. A debit balance means they have drawn more than they earned, and the business will need to recover it. Comparing columns shows whether drawings are in proportion to earnings.
Marks are mostly lost on a few points. Profit share, salary, interest on capital or drawings entered in the capital account is the most damaging. Drawings on the credit side, or interest on drawings on the wrong side, inverts the account.
A partner's salary is an appropriation of profit, not an expense in the income statement. Forgetting that an opening balance can be a debit also loses marks.
In the statement of financial position, add current account credit balances to capital. Deduct debit balances. Show each partner's balance separately unless the question asks for a total.
If appropriation and current account entries feel muddled, one of our teachers can trace a past-paper question through both accounts with you, line by line. Book a trial class
Related how-to
These formats are standard accounting practice with our own figures. Check your board's exact requirements on the exam boards page.
Practise the partners' current account
Share your own attempt in the trial class and the teacher will mark the layout line by line. One-to-one and online, from RM75/hr.
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