Which combination of statements is true about the fixed and fluctuating capital:

(A). Under the Fixed capital method, two separate accounts are maintained for each partner, viz., 'capital account' and 'current account'.

(B). Under the Fluctuating capital method, the balance of the capital account fluctuates from year to year.

(C). Under the Fixed capital method, drawings, salary, interest on capital etc. are posted (transferred) in the current accounts and not in the capital accounts.

(D). Under the Fixed capital method, the capital accounts always show a debit balance.

Choose the correct answer from the options given below:

Statement (A) - TRUE

Under the Fixed Capital Method, two accounts are maintained for each partner:

• Capital Account → Records only permanent capital changes (initial capital, additional capital introduced, capital withdrawn permanently)
• Current Account → Records all operational items (drawings, interest, salary, profit/loss share)

Statement (B) - TRUE

Under the Fluctuating Capital Method, only one account (Capital Account) is maintained. All transactions including drawings, interest, salary, and profit/loss are recorded in this single account, causing the balance to change continuously.

Statement (C) - TRUE

Under Fixed Capital Method, all adjustments like:

• Drawings
• Partner's salary
• Interest on capital
• Interest on drawings
• Share of profit/loss

are recorded in the Current Account only, keeping the Capital Account balance unchanged.

Statement (D) - FALSE

Capital accounts represent the owner's equity in the business, which is a liability for the firm. Therefore, capital accounts normally show a credit balance, not a debit balance. A debit balance in capital account would mean the partner owes money to the firm, which is an abnormal situation.

Statements (A), (B), and (C) are correct. Statement (D) is incorrect because capital accounts show credit balance under normal circumstances.

Correct Answer: Option 2 → (A), (B) and (C) only