Kinjal is a partner who withdrew ₹20,000 from the firm on 1st April 2020. Interest on drawings is charged at 10% per annum. What is the correct journal entry For transferring interest on drawings to profit and loss appropriation account, when accounts of the partnership firm are closed on 31st Dec 2020?
Answer & explanation
Correct answer: option 3
The correct answer is option 3-
Interest on Drawings A/c Dr. ₹1,500
To Profit and Loss Appropriation A/c ₹1,500
(I.O.D charged)
Interest on drawings = Amount of drawings x Rate of interest x Period of interest
= 20,000 * 10/100 * 9/12
= ₹1,500
Thus, For transferring interest on drawings to Profit and Loss Appropriation Account the journal entry is as follows:
Interest on Drawings A/c Dr. ₹1,500
To Profit and Loss Appropriation A/c ₹1,500