What is meant by ‘Fluctuating Capital’ of a Partner?

Fluctuating Capital Method is one of the methods to maintain the capital account of partners in a partnership firm.

Under Fluctuating Capital Accounts Method only on account, i.e., ‘Capital Account is maintained for each partner.

All transactions of a partner, whether relating to

1. Capital
2. salary or commission allowed
3. interest allowed on capital
4. Drawings
5. Interest on Drawings
6. share of profit or loss

are shown in the Capital Account of the partner.

As a result, the balance in the Capital Account fluctuates with every transaction.

Here are some Key Points

The Capital Account of a Partner, under this method, may have a credit or debit balance.

Capital Accounts having credit balances are shown on the liabilities side, while

Capital Accounts having debit balances are shown on the assets side of the Balance Sheet.

Conclusion:-

Fluctuating Capital Accounts Method is normally followed for maintaining Capital Accounts and therefore, in the absence of any instruction, this method should be followed for maintaining the Partner’s Capital Accounts.