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How do partners share profit, and how are their accounts kept?

The features of a partnership, the appropriation account, interest on capital and drawings, partners' salaries, profit-sharing ratios, and the use of capital and current accounts.

A focused answer to AQA A-Level Accounting 3.1, covering the features of a partnership, the appropriation account, interest on capital and drawings, partners' salaries, profit-sharing ratios, and the difference between capital and current accounts.

Generated by Claude Opus 4.811 min answerUpdated 2026-06-02

Reviewed by: AI editorial process; not yet individually human-reviewed

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What this dot point is asking
Features of a partnership
The appropriation account
Capital and current accounts
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What this dot point is asking

AQA wants you to prepare a partnership appropriation account, deal with interest on capital and drawings, partners' salaries and profit-sharing ratios, and distinguish between capital and current accounts. This is unit 3.1.10, and a full appropriation account with current-account entries is a high-tariff Paper 1 task where the order and signs of the allocations decide the marks.

Features of a partnership

A partnership pools capital and skills and spreads risk and workload, but partners have unlimited liability (unless it is a limited liability partnership) and must agree on decisions, which can cause disputes. The appropriation arrangements (salaries, interest on capital, profit ratio) exist to reward partners fairly for unequal capital, effort or skill.

The appropriation account

The order matters because interest on drawings increases the pool to share (it is a charge on the partners that returns to the business), while salaries and interest on capital are prior claims taken before the residual split. A profit-sharing ratio such as 3:2 means the residual is divided by five and shared three-fifths to two-fifths. Salaries here are not a business expense and never enter the income statement, because partners own the business rather than working for it as employees, this is a frequently tested distinction.

Capital and current accounts

Appropriating profit and posting current accounts

Allocate salaries and interest on capital

A and B have a profit for the year of $60{,}000$ , share profits equally, take salaries of $10{,}000$ each and receive $5\%$ interest on capital of $40{,}000$ each. Salaries $= 2 \times 10{,}000 = 20{,}000$ ; interest on capital $= 2 \times (5\% \times 40{,}000) = 4{,}000$ .

Calculate the residual profit

$60{,}000 - 20{,}000 - 4{,}000 = 36{,}000$ , shared equally as $18{,}000$ each.

Post each partner's current account

Each partner's current account is credited with their salary ( $10{,}000$ ), interest on capital ( $2{,}000$ ) and residual share ( $18{,}000$ ), a total of $30{,}000$ credited, then debited with their drawings and any interest on drawings.

Read the closing balance

A credit balance on a current account means the partner is owed money by the business; a debit balance means the partner has drawn more than their entitlement and effectively owes the business.

A capital account holds each partner's fixed investment and changes only on admission, retirement or a formal alteration of capital. A current account records the running total of profit share, salary and interest on capital, less drawings and interest on drawings, and fluctuates every year. Keeping them separate makes each partner's entitlement and drawings transparent.

Try this

Q1. State two items appropriated to partners before residual profit is shared. [2 marks] For example partners' salaries and interest on capital.

Q2. Explain the difference between a partner's capital account and current account. [2 marks] Capital is the fixed long-term investment; the current account records the changing balance of profit shares, salary, interest and drawings.

Exam-style practice questions

Practice questions written in the style of AQA exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.

AQA 20188 marksAnya and Ben are partners with capitals of

50,000 and

30,000. Profit for the year is

74,000. The agreement allows 6% interest on capital, a salary of

12,000 to Ben, interest on drawings of

1,000 (Anya) and

1,500 (Ben), and a residual profit-sharing ratio of 3:2. Prepare the appropriation account.

Show worked answer →

A full worked appropriation; method marks for each allocation.

Start with profit for the year $74,000. Add interest on drawings (charged to partners):$ 1,000 + $1,500 =$ 2,500, giving $76,500 to appropriate.

Deduct interest on capital: 6% of $50,000 =$ 3,000 (Anya) and 6% of $30,000 =$ 1,800 (Ben), total $4,800.

Deduct Ben's salary $12,000.

Residual profit: $76,500 -$ 4,800 - $12,000 =$ 59,700, shared 3:2, so Anya gets three-fifths = $35,820 and Ben two-fifths =$ 23,880.

Markers reward adding interest on drawings back, deducting salary and interest on capital, and splitting the residual in the correct ratio (3:2 means divide by 5).

AQA 20214 marksExplain the difference between a partner's capital account and current account, and state how interest on drawings is treated.

Show worked answer →

A 4-mark answer needs the account distinction and the drawings treatment.

A capital account records each partner's fixed, long-term investment and changes only on admission, retirement or a formal change in capital. A current account records the running balance of profit share, salary and interest on capital, less drawings and interest on drawings; it fluctuates each year (2 marks).

Interest on drawings is charged to the partner (a debit in the current account) and added back in the appropriation account, because charging partners for early drawings increases the profit available to share (2 marks). Markers reward the fixed-versus-fluctuating distinction and the add-back of interest on drawings.

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Sources & how we know this

AQA A-level Accounting (7127) specification — AQA (2017)