Explanation:

Fluctuating Capital Account Method

Firstly, fluctuate means anything having unpredictable ups and downs. Hence, under this method, the Capital of each Partner keeps on changing from time to time.

In a firm, there is a single account under the name “Capital” which shows all the necessary information about the different transactions related to the capital. 

Fixed Capital Account Method

Under this method, the firm prepares 2 accounts which show different transactions related to the capitals of the partners.

These two accounts are as follows :

(a) Fixed Capital Account

The firm opens the account in the name of “Fixed Capital Account”. Initial Investment will appear on the credit side as the starting entry. Only 2 kinds of Capital related transactions can affect its balance :

(1) Addition of Capital

(2) Permanent Withdrawal of Capital

(b) Current Account

It mainly includes items such as :

1. Interest on Capital

2. Interest on Drawings

3. Salaries and other remuneration to employees

4. Commission to employees and even more.