Question

Charge interest on drawing rs 500

Answer 1

Answer:

Look into the following journal entry

Explanation:

Drawing A/c ........Dr. (500)

To interest on drawing A/C (500)

Answer 2

Capital A/c                                  ----Dr          500

         To Interest on Capital A/c                           500

(Being interest on Capital charged for Rs.500)

GIVEN: Charge interest on drawing rs 500
TO FIND: Journal Entry for charging interest on Capital
SOLUTION:

As we are given in the question,

Interest on Capital is to be charged.

Therefore, it means that the owner who has invested a certain amount of capital in the business to manage the operations and running of the business is charging a certain rate of interest for the money he has invested.

It is just like an expense to the business firm and adds to the money of the owner.

It is on whether the businessman that he wants the cash interest or will add the money to the capital account.

Therefore,

The journal entry for charging interest on capital will be:

Capital A/c                                  ----Dr          500

         To Interest on Capital A/c                           500

(Being interest on Capital charged for Rs.500)

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