When a shareholder pays calls in arrears along with interest, which account is credited with the interest amount?
Answer & explanation
Correct answer: option 3
The correct answer is option 3- Interest on Calls in Arrears Account.
On receipt of the call amount together with interest, the amount of interest shall be credited to interest account while call money shall be credited to the respective call account or to calls in arrears account. When the shareholder makes the payment of calls in arrears together with interest, the entry will be as follows:
Bank A/c Dr.
To Calls in Arrears A/c
To Interest on Calls in Arrears A/c
(Calls in arrears received with interest)