In a partnership firm, the partners maintain fixed capital accounts. During the year, Partner A withdraws ₹40,000 out of his capital. In which account and on which side should this drawing be recorded?

Debit side of Partner A’s Capital Account

The correct answer is option 4- Debit side of Partner A’s Capital Account.

 A did the permanent withdrawal of capital which affects the capital structure of the firm and is recorded directly in the Capital Account (on the debit side) because it reduces the capital balance.

Under the fixed capital method, the capitals of the partners shall remain fixed unless additional capital is introduced or a part of the capital is withdrawn as per the agreement among the partners. All items like share of profit or loss, interest on capital, drawings, interest on drawings, etc. are recorded in a separate accounts, called Partner’s Current Account. The partners’ capital accounts will always show a credit balance, which shall remain the same (fixed) year after year unless there is any addition or withdrawal of capital. The partners’ current account on the other hand, may show a debit or a credit balance. Thus under this method, two accounts are maintained for each partner viz., capital account and current account, While the partners’ capital accounts shall always appear on the liabilities side in the balance sheet, the partners’ current account’s balance shall be shown on the liabilities side, if they have credit balance and on the assets side, if they have debit balance.