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Under the fixed capital method, the partner's capital account:
AAlways shows a credit balance
BMay show a debit or a credit balance
CAlways shows a debit balance
DIs closed off at the end of each year
Answer & Solution
Correct answer: A. Always shows a credit balance
1. Because only capital introduced and capital withdrawn pass through it, the account cannot be driven negative by losses or drawings.
2. The textbook states that the capital account will always show a credit balance under the fixed capital method.
3. The current account is the one that may show either a debit or a credit balance.
4. Under the fluctuating capital method the capital account generally shows a credit balance but may also show a debit balance.
5. The word always, applied to the fixed method, is what distinguishes the two.
_Source: TN HSC Class 12 Accountancy (Samacheer Kalvi, Govt of Tamil Nadu), Unit 3 "Accounts of Partnership Firms - Fundamentals", §3.6.3_
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