Acca financial Accounting (FA) Study Text ac ca (FA)

Introduction to financial reporting 

6

 

KAPLAN PUBLISHING

 

The capital structure of a sole trader is also relatively simple. There is a capital 

account which represents the financial interest of the owner in the business. 

The capital account can be added to by the owner introducing additional capital 

into the business, or by the business making profits, which the sole trader is 

entitled to. The capital account can be reduced by the sole trader making 

withdrawals from the capital account during the year (often referred to a 

'drawings') or by the business making losses. 

Partnership 

Similar to a sole trader the owners of a partnership receive all the profits and 

have unlimited liability for the losses and debts of the business. The key 

distinction is that there are at least two owners. The joint owners, or partners, 

are jointly and severally liable for the losses the business makes (i.e. they are 

each fully liable in respect of all business liabilities). 

The capital structure of a partnership is similar to that of a sole trader. Each 

partner will have a financial interest in the business and this will be divided 

between a capital account and current account. The capital account is normally 

a fixed amount that will only change upon a partner joining or leaving the 

business. The current account includes the share of profit or loss that each 

partner is entitled to, less any personal drawings made by that partner.