Journal Entry for Interest on Drawings is- Particulars Amount Amount Drawings A/c Dr $$$ To Interest on Drawings A/c $$$ So as per the modern approach: From the point of view of business, Interest on Drawings is an Income. When there is an inRead more
Journal Entry for Interest on Drawings is-
Particulars | Amount | Amount |
Drawings A/c Dr | $$$ | |
To Interest on Drawings A/c | $$$ |
So as per the modern approach: From the point of view of business, Interest on Drawings is an Income.
- When there is an increase in the Income, it is credited.
- When there is a decrease in the Income, it is debited.
From the point of view of the proprietor, Interest on Drawings is a Liability.
So as per the modern approach:
- When there is an increase in the Liability, it is credited.
- When there is a decrease in the Liability, it is debited.
So as per the modern approach, Interest on Drawings is credited because with Interest the income increases for the business. Whereas, the amount of such interest is a loss from the point of view of the owner/ Proprietor, as such the amount of drawings is increased by the amount of interest and hence the Drawings account is debited.
For Example, Harry charged interest on drawings on Rs 10,000 @ 12% for one year.
Explanation:
Step 1: To identify the account heads.
In this transaction, two accounts are involved, i.e. Drawings A/c and Interest on Drawings A/c.
Step 2: To Classify the account heads.
According to the modern approach: From the point of view of business, Interest on Drawings is a Revenue A/c and Drawings A/c is an Expense A/c.
Step 3: Application of Rules for Debit and Credit:
According to the modern approach: As Revenue increases because of interest on drawings received by the business, Interest on Drawings A/c will be Credited. (Rule – increase in Revenue is credited).
Drawings A/c is an expense account for the business and as expense increases, Drawings A/c will be debited. (Rule – increase in the expenses is debited).
So from the above explanation, the Journal Entry will be-
Particulars | Amount | Amount |
Drawings A/c Dr | 1,200 | |
To Interest on Drawings A/c | 1,200 |
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Goods purchased for cash The purchasing of goods for cash is a business transaction and a vital business operation that is supposed to be recorded in the journal in order to keep a track of the business stock. A journal is a detailed account that records all the financial transactions in a businessRead more
Goods purchased for cash
The purchasing of goods for cash is a business transaction and a vital business operation that is supposed to be recorded in the journal in order to keep a track of the business stock.
A journal is a detailed account that records all the financial transactions in a business chronologically. It is used to keep a record of all the financial transactions occurring in a business and one of its primary motives is that it helps in the preparation of the ledger and trial balance statement.
Journal entry for goods purchased for cash
In the entry, goods purchased for cash, the cash a/c is credited and the purchases a/c is debited. It’s because of that golden rule in accounting, Dr. what comes in and Cr. what goes out.
Imagine, goods were purchased for cash on 1-Jan-2021. Then we’ll be passing the entry below: