Explanation:
Partners' capital refers to the amount of money invested by each partner in a partnership firm. The interest on partners' capital is the return earned by them on their investment. It is a part of the profits generated by the firm, which is distributed among the partners.

Appropriation of Profit:
Interest on partners' capital is an appropriation of profit. It is not an expenditure incurred by the firm but is a distribution of profits to the partners. The interest on partners' capital is calculated on the capital balance of each partner and is charged to the profit and loss appropriation account.

Accounting Treatment:
The interest on partners' capital is credited to the partners' capital account in the profit and loss appropriation account. This increases the balance in the capital account of each partner and represents the interest earned by them on their capital investment.

Importance of Interest on Partners capital:
Interest on partners' capital is an important element of partnership accounting. It helps in ensuring that the partners receive a fair return on their investment in the firm. It also helps in motivating the partners to invest more capital in the firm, as they can earn a return on their investment.

Conclusion:
In conclusion, interest on partners' capital is an appropriation of profit, and not an expenditure. It is an important element of partnership accounting, and helps in ensuring that the partners receive a fair return on their investment in the firm.