Capital Interest and drawing interest
Ataur Rehman (147 Points)
14 August 2018
What is interest on Capital and interest on drawings. With example thanks.
5 Replies
prasad Nilugal
(3914 Points)
Replied 14 August 2018
partners of partnership firm will get interest on capital for capital employed in Business ,on the contrary partners have to pay interest on drawing s for their drawings from the Business .
Jatin
(Accountant)
(3479 Points)
Replied 14 August 2018
Interest paid to partners on capital & charge interest on drawings as per partnership deep
Sontena bhaskara rao
(78 Points)
Replied 23 September 2018
drawings a/c dr
to capital a/c
capital a/c dr
to cash or bank a/c.
this entry is ok or anything false. please make reply for how to pass this entries in books.
to capital a/c
capital a/c dr
to cash or bank a/c.
this entry is ok or anything false. please make reply for how to pass this entries in books.
Ashwin Kumar
(1234 Points)
Replied 23 September 2018
partnership firm is not like companies. sometimes there are firms where a partner alone contributes capital and another partner takes care of the busniess without investing. in that case the partner who contributes the capital gets interest on capital which shall not exceed 12% as per act. a lower percentage may be specified in the partnership deed.
prasad Nilugal
( GST Practitioner & Accounts )
(14801 Points)
Replied 23 September 2018
You have pass entries in the books of accounts as per capital employed in the busniess fluctuating or fixed capital method .
J.E as per fluctuating capital method for Interest on capital
1) Interest on Partners capital A/c Dr
To partners Capital A/c Cr
( Being interest paid on capital to partners )
2) Profit & Loss Appropriation A/c A/c Dr
To Interest on partners capital A/c Cr
( Interest transfer to P&L Appo)
J.E for Interest on Drawings
1) Partners capital A/c Dr
partners Interest on Drawings A/c Cr
( Being interest earned on Drawings )
2) partners interest on Drawings A/c Dr
To Profit & Loss Appropriation A/c Cr
( Being interest income transfer to P&L Appo )
J.E for interest on capital in Fixed capital method
1) Interest on partners capital A/c Dr
To partners current Account A/c Cr
(being interest paid to partners )
2) Profit & Loss Appropriations A/c Dr
To Interest on partners capital A/c Cr
(Interest transfer to P&L Appo)
J.E for drawings iin fixed capital method
1) partners Current account A/c Dr
To Interest On partners Drawings A/c Cr
(Being interest earned on drawings )
2) Interest on partners Drawings A/c Dr
To Profit & Loss Appropriations A/c Cr
(Interest credited to P&L Appo )
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