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Bonnie
BonnieCurious
In: 1. Financial Accounting > Miscellaneous

Interest on drawings is

  1. Debited to P&L A/C
  2. Credited to P&L A/C
  3. Debited to Capital A/C
  4. None
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    1 Answer

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    1. GautamSaxena .
      2022-07-14T08:49:07+00:00Added an answer on July 14, 2022 at 8:49 am
      This answer was edited.

      Interest on Drawings 

      Interest on drawings is debited to the capital account.

      As Interest on drawings is charged on the drawings made by partners/proprietors from their respective capital accounts in a partnership firm or proprietary concern.

      Drawings refer to the amount withdrawn by an owner or partner for his personal use. Thereby, interest on drawings is an income of a firm payable by the owner hence, it’s deducted/debited.

      The Profit and Loss Account, on the other hand, shows the income and expenses of a business incurred over an accounting period. Accounts like interest on drawings and capital are not shown in the P&L a/c because they are internal transactions and P&L a/c focuses only on the financial statement that summarizes the revenues, costs, and expenses incurred during a specified period.

       

      Partners’ Capital A/c

       

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