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Where will you record interest on drawings?
- a)Debit side of Profit & Loss Appropriation Account.
- b)Credit side of Profit & Loss Appropriation Account.
- c)Credit side of Profit & Loss Account.
- d)Debit side of Capital/Current Account only.
Correct answer is option 'B'. Can you explain this answer?
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Most Upvoted Answer
Where will you record interest on drawings?a)Debit side of Profit &...
Explanation:
Interest on drawings refers to the interest charged by the proprietor on the amount of drawings made by him from the business. It is a type of expense for the business.
The correct method of recording interest on drawings is as follows:
Record in Profit and Loss Appropriation Account:
- Interest on drawings is debited to the partner's current account and credited to the Profit and Loss Appropriation Account.
- This is because the interest on drawings is an appropriation of profit and not a business expense.
- The Profit and Loss Appropriation Account is used to distribute the profit among the partners as per the agreed terms.
Record on the credit side of Profit and Loss Appropriation Account:
- The interest on drawings is recorded on the credit side of the Profit and Loss Appropriation Account.
- This is because the interest on drawings is added to the profits of the business and shared among the partners.
Example:
Suppose a partner withdraws Rs.10,000 from the business and charges an interest of 10% p.a. on the amount. The interest on drawings would be Rs.1,000 (10% of Rs.10,000).
The journal entry to record interest on drawings would be as follows:
Partner's current account debit - Rs.1,000
Profit and Loss Appropriation Account credit - Rs.1,000
Conclusion:
Hence, the correct answer is option 'B', i.e., the interest on drawings is recorded on the credit side of the Profit and Loss Appropriation Account.
Interest on drawings refers to the interest charged by the proprietor on the amount of drawings made by him from the business. It is a type of expense for the business.
The correct method of recording interest on drawings is as follows:
Record in Profit and Loss Appropriation Account:
- Interest on drawings is debited to the partner's current account and credited to the Profit and Loss Appropriation Account.
- This is because the interest on drawings is an appropriation of profit and not a business expense.
- The Profit and Loss Appropriation Account is used to distribute the profit among the partners as per the agreed terms.
Record on the credit side of Profit and Loss Appropriation Account:
- The interest on drawings is recorded on the credit side of the Profit and Loss Appropriation Account.
- This is because the interest on drawings is added to the profits of the business and shared among the partners.
Example:
Suppose a partner withdraws Rs.10,000 from the business and charges an interest of 10% p.a. on the amount. The interest on drawings would be Rs.1,000 (10% of Rs.10,000).
The journal entry to record interest on drawings would be as follows:
Partner's current account debit - Rs.1,000
Profit and Loss Appropriation Account credit - Rs.1,000
Conclusion:
Hence, the correct answer is option 'B', i.e., the interest on drawings is recorded on the credit side of the Profit and Loss Appropriation Account.
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Community Answer
Where will you record interest on drawings?a)Debit side of Profit &...
Intrest on drawing is an expense and loss for the owner,but it is an earning for the firm,bcz the firm charged intrest on drawing for what the owner withdrawal money from firm,
so it will be shown on credit side of p&l account
so it will be shown on credit side of p&l account
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Where will you record interest on drawings?a)Debit side of Profit & Loss Appropriation Account.b)Credit side of Profit & Loss Appropriation Account.c)Credit side of Profit & Loss Account.d)Debit side of Capital/Current Account only.Correct answer is option 'B'. Can you explain this answer?
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Where will you record interest on drawings?a)Debit side of Profit & Loss Appropriation Account.b)Credit side of Profit & Loss Appropriation Account.c)Credit side of Profit & Loss Account.d)Debit side of Capital/Current Account only.Correct answer is option 'B'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Where will you record interest on drawings?a)Debit side of Profit & Loss Appropriation Account.b)Credit side of Profit & Loss Appropriation Account.c)Credit side of Profit & Loss Account.d)Debit side of Capital/Current Account only.Correct answer is option 'B'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Where will you record interest on drawings?a)Debit side of Profit & Loss Appropriation Account.b)Credit side of Profit & Loss Appropriation Account.c)Credit side of Profit & Loss Account.d)Debit side of Capital/Current Account only.Correct answer is option 'B'. Can you explain this answer?.
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Where will you record interest on drawings?a)Debit side of Profit & Loss Appropriation Account.b)Credit side of Profit & Loss Appropriation Account.c)Credit side of Profit & Loss Account.d)Debit side of Capital/Current Account only.Correct answer is option 'B'. Can you explain this answer?, a detailed solution for Where will you record interest on drawings?a)Debit side of Profit & Loss Appropriation Account.b)Credit side of Profit & Loss Appropriation Account.c)Credit side of Profit & Loss Account.d)Debit side of Capital/Current Account only.Correct answer is option 'B'. Can you explain this answer? has been provided alongside types of Where will you record interest on drawings?a)Debit side of Profit & Loss Appropriation Account.b)Credit side of Profit & Loss Appropriation Account.c)Credit side of Profit & Loss Account.d)Debit side of Capital/Current Account only.Correct answer is option 'B'. Can you explain this answer? theory, EduRev gives you an
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