Question

Under the fluctuating capital method, why is it necessary to open a separate drawings account for each partner?

Answer 1

Even under the fluctuating capital method, it is usual to maintain a separate drawing account for each partner.

The reasons are as follows:

1. The drawing account records the withdrawals made by a partner from time to time, so the capital account is not burdened with numerous entries relating to drawings. The balance of the drawing account is transferred to the capital account only at the end of the financial year.
2. The drawing account separately shows the total drawings made by a partner during a financial period.