Question

charged interest on drawing 1,500​

Answer 1

drawing which draw ggjjkkfzsjvsnbv

Answer 2

Answer:

Here's how we deal with interest on drawings.

Explanation:

• Interest on drawings is considered as an income to the firm due to the business entity concept which states that the proprietor and the business are separate legal entities.
• There is no cash entering the business as the business already owes the proprietor some amount of money which in accounting terms is the 'CAPITAL'
• As the proprietor owes the business interest the amount owed by the business to the proprietor decreases.
• Capital which is a liability decreases - so it should be debited
• Interest on drawings which is an income increases - so it should be credited
• The journal entry that needs to be passed is

             Capital A/c     Dr        1,500

                    To interest on drawings A/c   1,500

• In accounting equation- it is a addition as well as a deduction from capital as an income is an addition to capital
• The net effect of this transaction is NIL
• If given as an adjustment in final accounts, it should be credited to the P&L A/c as it is an indirect income and be deducted from capital in the balance sheet.

Hope this answers your question