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Can anyone explain that why there is decrease and increase in capital whenever there is a question of interest on drawings and interest on capital ? (Please answer in context of accounting equation)?
Most Upvoted Answer
Can anyone explain that why there is decrease and increase in capital ...
Answer:
Interest on Drawings and Interest on Capital
Interest on Drawings and Interest on Capital are two concepts that affect the capital of a business. These concepts can cause an increase or decrease in capital, depending on the situation.
Interest on Drawings
When a partner withdraws money from the business, it is known as a drawing. If the partner has taken out more money than their share of profits, then they must pay interest on the excess amount. This interest is known as interest on drawings.
Effect on Capital:
- Decreases capital: Interest on drawings is an expense for the business. Therefore, it reduces the profits of the business, which in turn reduces the capital.
Interest on Capital
When a partner invests money in the business, it is known as capital. If the partner has invested more money than their share of profits, then the business must pay interest on the excess amount. This interest is known as interest on capital.
Effect on Capital:
- Increases capital: Interest on capital is an income for the business. Therefore, it increases the profits of the business, which in turn increases the capital.
Conclusion:
Interest on drawings and interest on capital are two concepts that affect the capital of a business. Interest on drawings decreases the capital, while interest on capital increases the capital. It is important to keep track of these concepts to ensure that the capital of the business remains accurate.
Interest on Drawings and Interest on Capital
Interest on Drawings and Interest on Capital are two concepts that affect the capital of a business. These concepts can cause an increase or decrease in capital, depending on the situation.
Interest on Drawings
When a partner withdraws money from the business, it is known as a drawing. If the partner has taken out more money than their share of profits, then they must pay interest on the excess amount. This interest is known as interest on drawings.
Effect on Capital:
- Decreases capital: Interest on drawings is an expense for the business. Therefore, it reduces the profits of the business, which in turn reduces the capital.
Interest on Capital
When a partner invests money in the business, it is known as capital. If the partner has invested more money than their share of profits, then the business must pay interest on the excess amount. This interest is known as interest on capital.
Effect on Capital:
- Increases capital: Interest on capital is an income for the business. Therefore, it increases the profits of the business, which in turn increases the capital.
Conclusion:
Interest on drawings and interest on capital are two concepts that affect the capital of a business. Interest on drawings decreases the capital, while interest on capital increases the capital. It is important to keep track of these concepts to ensure that the capital of the business remains accurate.
Community Answer
Can anyone explain that why there is decrease and increase in capital ...
The capital is decreased because interest of drawing is charged by partners capital which leads to decline the capital.
The capital is increased because interest on capital leads to increase the capitals of parnters.
interest on drawing is charge against profit . And interest on capital is appropriation of profit
The capital is increased because interest on capital leads to increase the capitals of parnters.
interest on drawing is charge against profit . And interest on capital is appropriation of profit
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Can anyone explain that why there is decrease and increase in capital whenever there is a question of interest on drawings and interest on capital ? (Please answer in context of accounting equation)?
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Can anyone explain that why there is decrease and increase in capital whenever there is a question of interest on drawings and interest on capital ? (Please answer in context of accounting equation)? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Can anyone explain that why there is decrease and increase in capital whenever there is a question of interest on drawings and interest on capital ? (Please answer in context of accounting equation)? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Can anyone explain that why there is decrease and increase in capital whenever there is a question of interest on drawings and interest on capital ? (Please answer in context of accounting equation)?.
Can anyone explain that why there is decrease and increase in capital whenever there is a question of interest on drawings and interest on capital ? (Please answer in context of accounting equation)? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Can anyone explain that why there is decrease and increase in capital whenever there is a question of interest on drawings and interest on capital ? (Please answer in context of accounting equation)? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Can anyone explain that why there is decrease and increase in capital whenever there is a question of interest on drawings and interest on capital ? (Please answer in context of accounting equation)?.
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