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Drawings and loan

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I have 2 very basic questions.

1. What is the difference between drawings and loan - say it is a firm? Is there a funda that beyond a limit the drawings becomes a loan?

2. What one can understand from the information "XYZ Loan A/c --------------100,000"? There is no information if this is Credit or Debit balance. Do we need to ask for the info dr. or cr. OR can we conclude that this is a credit balance?

Many thanks!

Replies (1)

veeru sagar

BBE M.com CA Final

473 Points Posted on 19 April 2014

Dear Hema

As you asked Query one in which drawing excess from business can be teat as loan and answer is , in the partnership firm partner have a partnership deed in which explain the treatment of drawing , and what is the rate of interest would be charged on the drawing is a kind of loan which taken by Partner from partnership firm.

in 2nd query you will have to asked your client that is, any account which you consider , this account Dr or Cr Balance showing is loan & Advance or loan liablity, without proper information you can take only assumption and accounts are not prepare on the assumption basis