Which account is debited for charging interest on partners drawings by the partnership firm, while preparing profit and loss appropriation account?
Answer & explanation
Correct answer: option 3
The correct answer is option 3- Either option 1 or 2.
The journal entries passed for charging Interest on Drawings are as follows-
(a) For charging interest on drawings to partners’ capital accounts:
Partners Capital/Current A/c’s (individually) Dr.
To Interest on Drawings A/c
(b) For transferring interest on drawings to Profit and Loss Appropriation Account:
Interest on Drawings A/c Dr.
To Profit and Loss Appropriation A/c
* A combined entry may be passed for the above two journal entry for charging interest on drawings to partners’ capital accounts. The journal entry is:
Partners' Capital/Current A/c’s (individually) Dr.
To P & L Appropriation A/c
* It will be capital account or current account; it depends on the method which firm follows for maintaining capital accounts of partners. So, the correct answer is option 3.