Interest on drawings is treated as Revenue.

Revenue:
Revenue refers to the income generated by a business from its regular activities, such as the sale of goods or services. It represents the inflow of economic benefits to the business entity. Revenue is a key component in determining a company's financial performance and is reported on the income statement.

Interest on Drawings:
When a partner withdraws funds from the partnership, it is known as a drawing. Drawings can be in the form of cash or goods taken by the partner for personal use. Interest on drawings refers to the interest charged on the amount of drawings taken by a partner.

Treatment of Interest on Drawings:
Interest on drawings is not a business expense but rather a method to discourage partners from withdrawing excessive amounts from the partnership. It is considered as revenue for the partnership because it increases the overall income of the partnership.

Reasoning:
1. Interest on drawings is not a cost incurred in the regular operations of the business. It does not relate to any expenses or liabilities of the partnership.
2. It is charged to the partner as a penalty for using partnership funds for personal purposes.
3. By treating interest on drawings as revenue, it is added to the partnership's income, which helps in determining the net profit or loss of the partnership.
4. This revenue is then distributed among the partners according to their profit-sharing ratio.

Accounting Treatment:
Interest on drawings is recorded in the partner's capital account as a debit entry. The amount of interest is calculated based on the agreed-upon rate or as specified in the partnership agreement. It is then credited to the revenue or interest on drawings account.

Example:
Let's say a partner has withdrawn $10,000 from the partnership during the year. The partnership agreement specifies that interest on drawings will be charged at a rate of 10% per annum. In this case, the interest on drawings would be $1,000 ($10,000 x 10%). This $1,000 would be recorded as a debit in the partner's capital account and a credit in the interest on drawings account.

In conclusion, interest on drawings is treated as revenue because it increases the overall income of the partnership and is charged to the partners as a penalty for using partnership funds for personal purposes.