Journal Entry for Charged Interest on Capital

When a partner invests capital in a partnership, they are entitled to receive interest on that capital. In this case, we will journalize the entry for charging interest on capital at a rate of 10% per annum on a capital balance of Rs. 1,20,000 for six months.

Determine the Interest Amount

To calculate the interest amount, we will use the formula:

Interest = Principal * Rate * Time

Here, Principal = Rs. 1,20,000, Rate = 10% per annum, and Time = 6 months.

We need to convert the time period to years, so we will divide it by 12:

Time in Years = 6/12 = 0.5 years

Now, we can calculate the interest:

Interest = 1,20,000 * 10/100 * 0.5 = Rs. 6,000

Therefore, the interest charged on the capital is Rs. 6,000.

Journal Entry

To record the interest charged on capital, we will make the following journal entry:

Interest on Capital Account Dr. 6,000

To Capital Account 6,000

The interest on capital account is a nominal account and will be debited with the interest amount. The capital account is a personal account and will be credited with the interest amount.

This entry will increase the interest on capital account and decrease the capital account.

Conclusion

Charging interest on capital is a common practice in partnerships. It ensures that partners receive a return on their investment. When charging interest on capital, it is important to calculate the interest amount correctly and record it in the books of accounts.