Question

According to whichaccounting concept, the proprietor pays interest on drawings?

Answer 1

The Concept of Separate Legal Identity of the Company

Explanation:

• In the given case,the concept of Separate Legal Identity of the Business/Company/Firm can be applied.

• According to the Separate Legal Identity concept,the business or company or firm shall be treated as a separate entity(like a person) in the eyes of the law and a Corporate Veil is provided to the business/company/firm.

• If the proprietor has drawn funds from the business,then it will be treated as a loan to the proprietor by the firm/company/business and therefore Interest is charged from the proprietor.
• Such Interest is the income of the entity and thus,is credited to the P&L A/c of the entity.

Answer 2

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The Concept of Separate Legal Identity of the Company

Explanation:

In the given case,the concept of Separate Legal Identity of the Business/Company/Firm can be applied.

According to the Separate Legal Identity concept,the business or company or firm shall be treated as a separate entity(like a person) in the eyes of the law and a Corporate Veil is provided to the business/company/firm.

If the proprietor has drawn funds from the business,then it will be treated as a loan to the proprietor by the firm/company/business and therefore Interest is charged from the proprietor.

Such Interest is the income of the entity and thus,is credited to the P&L A/c of the entity.