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Interest on Drawings


The proprietor may also realize that when he draws money for his own use, the firm loses interest. Therefore, the proprietor may be debited with the interest on the money drawn by him. Interest, of course, depends on the amount and the date of withdrawal. In the absence of information, it is assumed that the drawings were made evenly throughout the year; therefore, interest is charged for six months on the full amount. Suppose, the total drawings are Rs. 10,000 and the rate of interest is 5%, the interest will be Rs. 250. the entries to be passed are:

 

Capital A/c Dr. Rs. 250
To Interest on Drawings Rs. 250

 

Profit and Loss Account

Dr.     Cr.

Particulars

Rs.

Particulars

Rs.

   

By interest on drawings

 

 

 

Balance Sheet

Liabilities

Rs.

Assets

Rs.

Capital

Add: Net Profit

Add: Interest on Capital

Less Interest on Drawings

 

 

 

 

 

 

 





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