Lesson Notes By Weeks and Term v3 - Senior Secondary 2
Current Account
Download the Lessonotes Mobile Nigeria 2025 app for faster lesson access on Android and iPhone.
Current Account
Download the Lessonotes Mobile Nigeria 2025 app for faster lesson access on Android and iPhone.
Subject: Financial Accounting
Class: Senior Secondary 2
Term: 1st Term
Week: 4
Theme: Manufacturing And Partnership Account
This page supports the lesson note with a companion video and a short classroom-ready summary.
For class groups and homework, share this lesson page so learners also get the summary, objectives, and full lesson context.
This lesson focuses on the Current Account within a partnership business, a crucial aspect of partnership accounting in Nigeria. Understanding Current Accounts is essential for financial transparency and proper distribution of profits and losses among partners, a common business structure in Nigeria, especially among small and medium-sized enterprises (SMEs) like legal firms, medical practices, and various trading partnerships. It helps to differentiate between partners' capital contributions and their day-to-day transactions with the business.
(Appropriation) items are subtracted from the credit side (Profit and Interest on drawings).
Credit Side total: ₦180,000 + ₦4,000 + ₦3,000 = ₦187,000 Debit Side (before share of profit): ₦10,000 (IC) + ₦7,500 (IC) + ₦30,000 (Salary) + ₦9,000 (Commission) = ₦56,500 Distributable Profit: ₦187,000 - ₦56,500 = ₦130,500 Adesanya's Share: (3/5) ₦130,500 = ₦78,300 Banjo's Share: (2/5) ₦130,500 = ₦52,200 Total Share: ₦78,300 + ₦52,200 = ₦130,
5
0
0. This is correct. The example table had incorrect shares. I will use the calculated shares. Corrected Profit and Loss Appropriation Account for the year ended 31st December 2023 | Details | ₦ | Details | ₦ | | :-------------------------------- | :------- | :--------------- | :------- | | Interest on Capital: | | Net Profit b/d | 180,000 | | Adesanya | 10,000 | Interest on Drawings: | | | Banjo | 7,500 | Adesanya | 4,000 | | Partner's Salary: | | Banjo | 3,000 | | Adesanya | 30,000 | | | | Partner's Commission: | | | | | Banjo | 9,000 | | | | Share of Profit: | | | | | Adesanya | 78,300 | | | | Banjo | 52,200 | | | | Total | 187,000 | Total | 187,000 | Step 3: Prepare Partners' Current Accounts. Partners' Current Accounts | Debit | Adesanya (₦) | Banjo (₦) | Credit | Adesanya (₦) | Banjo (₦) | | :------------------------------ | :--------------- | :------------ | :------------------------------ | :--------------- | :------------ | | Balance b/d (Opening Debit) | - | 5,000 | Balance b/d (Opening Credit) | 15,000 | - | | Drawings | 40,000 | 30,000 | Interest on Capital | 10,000 | 7,500 | | Interest on Drawings | 4,000 | 3,000 | Partner's Salary | 30,000 | - | | Balance c/d (Closing Credit) | - | 31,700 | Partner's Commission | - | 9,000 | | | | | Share of Profit | 78,300 | 52,200 | | Balance c/d (Closing Debit) | 89,300 | - | | | | | Total | 133,300 | 69,700 | Total | 133,300 | 69,700 | | Balance b/d (Next Period's Opening) | 89,300 | - | Balance b/d (Next Period's Opening) | - | 31,700 | Calculations for Closing Balances: Adesanya: Credit Side Total: ₦15,000 (b/d) + ₦10,000 (IC) + ₦30,000 (Salary) + ₦78,300 (Share of Profit) = ₦133,300 Debit Side Total: ₦40,000 (Drawings) + ₦4,000 (ID) = ₦44,000 Closing Balance (Debit side, credit balance): ₦133,300 - ₦44,000 = ₦89,300 (Credit)
Banjo: Credit Side Total: ₦7,500 (IC) + ₦9,000 (Commission) + ₦52,200 (Share of Profit) = ₦68,700 Debit Side Total: ₦5,000 (b/d) + ₦30,000 (Drawings) + ₦3,000 (ID) = ₦38,000 Closing Balance (Credit side, debit balance): ₦68,700 - ₦38,000 = ₦30,700 (Credit).
Re-checking Banjo's balance in the table: It shows 31,
7
0
0. Let's see if there was an error in my calculation or the table.
Banjo's Credit side: 7,500 + 9,000 + 52,200 = 68,700 Banjo's Debit side: 5,000 + 30,000 + 3,000 = 38,000 Balance: 68,700 - 38,000 = 30,700 (Credit Balance). My table shows 31,700 for Banjo (Credit c/d) and 69,700 total.
Let me re-total Banjo's table rows: Credit Side total: 7,500 (IC) + 9,000 (Commission) + 52,200 (Share of Profit) = 68,
7
0
0. Debit Side entries: 5,000 (b/d) + 30,000 (Drawings) + 3,000 (ID) = 38,
0
0
0. Balance c/d (credit balance, so on debit side): 68,700 - 38,000 = 30,
7
0
0. So, Banjo's closing credit balance should be ₦30,
7
0
0. The table has ₦31,
7
0
0. I will correct the table to reflect the correct calculation. Revised Partners' Current Accounts (Corrected for Banjo's balance) | Debit | Adesanya (₦) | Banjo (₦) | Credit | Adesanya (₦) | Banjo (₦) | | :------------------------------ | :--------------- | :------------ | :------------------------------ | :--------------- | :------------ | | Balance b/d (Opening Debit) | - | 5,000 | Balance b/d (Opening Credit) | 15,000 | - | | Drawings | 40,000 | 30,000 | Interest on Capital | 10,000 | 7,500 | | Interest on Drawings | 4,000 | table has ₦31,
7
0
0. I will correct the table to reflect the correct calculation. Revised Partners' Current Accounts (Corrected for Banjo's balance) | Debit | Adesanya (₦) | Banjo (₦) | Credit | Adesanya (₦) | Banjo (₦) | | :------------------------------ | :--------------- | :------------ | :------------------------------ | :--------------- | :------------ | | Balance b/d (Opening Debit) | - | 5,000 | Balance b/d (Opening Credit) | 15,000 | - | | Drawings | 40,000 | 30,000 | Interest on Capital | 10,000 | 7,500 | | Interest on Drawings | 4,000 | 3,000 | Partner's Salary | 30,000 | - | | Balance c/d (Closing Credit) | 89,300 | 30,700 | Partner's Commission | - | 9,000 | | | | | Share of Profit | 78,300 | 52,200 | | Total | 133,300 | 68,700 | Total | 133,300 | 68,700 | | Balance b/d (Next Period's Opening) | - | 30,700 | Balance b/d (Next Period's Opening) | 89,300 | - |
Commentary: Adesanya has a credit balance of ₦89,300, meaning the partnership owes him this amount. Banjo also has a credit balance of ₦30,700, meaning the partnership owes him this amount. Both balances are assets for the partners and liabilities for the partnership. --- to the partnership and a liability to the partner. 2.
5. Step-by-Step Preparation of a Current Account:
1. Determine the opening balance: This will be given in the question as a debit or credit balance at the start of the period. A credit balance is posted on the credit side, a debit balance on the debit side.
2. Post credit entries: Add all items that increase the partner's claim on the business (Interest on Capital, Partner's Salary, Partner's Commission, Share of Profit) to the credit side.
3. Post debit entries: Add all items that decrease the partner's claim on the business (Drawings, Interest on Drawings, Share of Loss) to the debit side.
4. Balance the account: Sum the credit side. Sum the debit side. If Credit Side > Debit Side, the difference is a Credit Balance c/d (posted on the debit side to balance). This indicates the partnership owes the partner. If Debit Side > Credit Side, the difference is a Debit Balance c/d (posted on the credit side to balance). This indicates the partner owes the partnership.
5. Bring down the closing balance: The closing balance (Balance c/d) becomes the opening balance for the next period (Balance b/d) on the opposite side. 2.
6. Worked
Example: Preparing Current Accounts Adesanya and Banjo are partners sharing profits and losses in the ratio 3:2 respectively. Their partnership agreement provides for the following: Interest on capital: 5% per annum Interest on drawings: 10% per annum Adesanya to receive an annual salary of ₦30,000 Banjo to receive a commission of 5% on net profit Partners' fixed capital: Adesanya ₦200,000; Banjo ₦150,000 Current Account balances on 1st January 2023: Adesanya (Credit) ₦15,000; Banjo (Debit) ₦5,000 Drawings during 2023: Adesanya ₦40,000; Banjo ₦30,000 Net profit for the year ended 31st December 2023 was ₦180,
0
0
0. Required: Prepare the Partners' Current Accounts for the year ended 31st December
2
0
2
3. Step 1: Calculate appropriation items.
Interest on Capital: Adesanya: 5% of ₦200,000 = ₦10,000 Banjo: 5% of ₦150,000 = ₦7,500 Interest on Drawings: Adesanya: 10% of ₦40,000 = ₦4,000 Banjo: 10% of ₦30,000 = ₦3,000 Partner's Salary: Adesanya = ₦30,000 Partner's Commission: Banjo = 5% of ₦180,000 = ₦9,000 Step 2: Prepare Profit and Loss Appropriation Account to determine share of profit. Profit and Loss Appropriation Account for the year ended 31st December 2023 | Details | ₦ | Details | ₦ | | :-------------------------------- | :------- | :--------------- | :------- | | Interest on Capital: | | Net Profit b/d | 180,000 | | Adesanya | 10,000 | Interest on Drawings: | | | Banjo | 7,500 | Adesanya | 4,000 | | Partner's Salary: | | Banjo | 3,000 | | Adesanya | 30,000 | | | | Partner's Commission: | | | | | Banjo | 9,000 | | | | Share of Profit: | | | | | Adesanya | 69,900 | | | | Banjo | 46,600 | | | | Total | 173,000 | Total | 187,000 | Calculation of Distributable Profit: Net Profit + Interest on Drawings - Interest on Capital - Salary - Commission = ₦180,000 + (₦4,000 + ₦3,000) - (₦10,000 + ₦7,500) - ₦30,000 - ₦9,000 = ₦180,000 + ₦7,000 - ₦17,500 - ₦30,000 - ₦9,000 = ₦187,000 - ₦56,500 = ₦130,500 Share of Profit: Ratio 3:2 (Total parts = 5)
Adesanya: (3/5) ₦130,500 = ₦78,300. (Correction from the example table which showed 69,900, let's recheck) Wait, the appropriation account is balanced such that the debit side (Appropriation) items are subtracted from the credit side (Profit and Interest on drawings).
Credit Side total: ₦180,000 + ₦4,000 + ₦3,000 = ₦187,000 Debit Side (before share of profit): ₦10,000 (IC) + ₦7,500 (IC) + ₦30,000 (Salary) + ₦9,000 (Commission) = ₦56,500 Distributable Profit: ₦187,000 - ₦56,500 = ₦130,500 Adesanya's Share: (3/5) ₦130,500 = ₦78,300 Banjo's Share: (2/5) ₦130,500 = ₦52,200 * Total Share: ₦78,300 + ₦52,200 = ₦130,
5
0
0. This is correct. The example table had incorrect shares. I will use the calculated shares. *Corrected The Current Account in a partnership is a personal ledger account maintained for each partner, separate from their Capital Account. Its primary purpose is to record all transactions between the partners and the partnership that are not capital in nature. These transactions include partners' salaries, interest on capital, interest on drawings, drawings made, and their share of profit or loss. 2.
1. Distinction between Capital Account and Current Account: Capital Account: Records the initial capital invested by partners and any permanent additions or withdrawals of capital. Its balance usually remains fixed unless there's a specific agreement for capital adjustment.
Current Account: Records day-to-day transactions between the partner and the firm. Its balance fluctuates frequently. 2.
2. When is a Current Account used? Current Accounts are predominantly used when the Fixed Capital Method is adopted. Under this method, partners' Capital Accounts remain fixed, and all routine transactions are recorded in the Current Account. If the Fluctuating Capital Method is used, a separate Current Account is not maintained, and all transactions are directly posted to the Capital Account. For the purpose of this lesson, the focus is on scenarios where Current Accounts are necessary (i.e., fixed capital method). 2.
3. Items affecting the Current Account: 2.3.
1. Items that INCREASE a partner's Current Account balance (Credit Side): These are entitlements or benefits due to the partner from the partnership.
Interest on Capital: An agreed percentage of a partner's capital contribution, paid by the partnership to compensate partners for the use of their capital.
Partner's Salary: A regular payment agreed upon for a partner who takes an active role in the business operations, similar to an employee's salary.
Partner's Commission: A percentage of profits or sales paid to a partner, often as an incentive for specific achievements.
Share of Profit: The partner's share of the net profit for the accounting period, as determined by the Profit and Loss Appropriation Account, which increases their claim against the business.
Opening Credit Balance: A credit balance from the previous accounting period indicates a previous accumulation of entitlements or funds due to the partner. 2.3.
2. Items that DECREASE a partner's Current Account balance (Debit Side): These are obligations or withdrawals by the partner from the partnership.
Drawings: Cash or goods withdrawn by a partner for personal use. This reduces their claim on the business.
Interest on Drawings: An agreed percentage charged on partners' drawings to discourage excessive withdrawals and compensate the partnership for the use of funds.
Share of Loss: The partner's share of the net loss for the accounting period, which reduces their claim against the business.
Opening Debit Balance: A debit balance from the previous accounting period indicates that the partner had overdrawn or owed funds to the partnership. 2.
4. Format of a Current Account: A Current Account is prepared using the T-account format. Partner's Current Account | Debit (₦) | Credit (₦) | | :------------------------------ | :------------------------------- | | Balance b/d (Debit opening balance) | Balance b/d (Credit opening balance) | | Drawings | Interest on Capital | | Interest on Drawings | Partner's Salary | | Share of Loss | Partner's Commission | | Balance c/d (Credit closing balance) | Share of Profit | | | Balance c/d (Debit closing balance) | Explanation of Balances: A credit balance (Balance c/d on the debit side) indicates that the partnership owes the partner. This is a liability to the partnership and an asset to the partner. * A debit balance (Balance c/d on the credit side) indicates that the partner owes the partnership. This is an asset to the partnership and a liability to the partner. 2.
5. Step-by-Step Preparation of a Current Account:
1. Determine the opening balance: This will be given in the question as a debit or credit balance at the start of the period. A credit balance is posted on the credit side, a debit balance on the debit side.
2. Post credit entries: Add all items that increase the partner's claim on the business (Interest on Capital, Partner's Salary, Partner's Commission, Share of Profit) to the credit side.
3. Post debit entries: Add all items
Understanding Small and Medium-sized Enterprises (SMEs) in Nigeria: Many small businesses in Nigeria operate as partnerships (e.g., family businesses, artisan workshops, small law firms, medical centres). Knowledge of Current Accounts helps students understand how profits are genuinely distributed, how partners' personal withdrawals are managed, and how their individual financial standing with the business is determined. This is crucial for transparency and dispute resolution within such partnerships.
Entrepreneurship and Business Planning: For students aspiring to be entrepreneurs, especially those considering partnership ventures, this lesson provides foundational knowledge for structuring their business agreements. They learn the financial implications of different allowances (salary, interest on capital) and how drawings affect their claim on the business, encouraging sound financial management from inception.
Financial Literacy and Personal Finance: By studying how Current Accounts track partners' personal transactions with the business, students gain a better understanding of the importance of separating personal finances from business finances. This is a critical lesson applicable even in personal budgeting and managing personal investments, promoting financial discipline. ---