Question

Interest On Capital ​

Answer 1

Answer:

In other words, interest on capital is the interest paid to owners for providing a firm with the required capital to start a business. It is similar to obtaining a loan from any financial institution. The partners are paid interest on the capital that remains outstanding.

hope you like it

Mark it as brainliest answer

Answer 2

ANSWER :

❒ Interest on Capital :-

★ Interest on capital is the amount paid to the proprietor(s) of a business concern for the amount introduced by them to the business.

• ➺ Capital is the proprietors' cliam against the business entity. It is a liability of the business. Again, from the point of view of the business, it is assume that the business has borrowed the amount from the proprietor(s). Therefore, interest on capital is an expense for the business.

• ➺ Interest on capital is shown on the Debit side of the Profit and Loss Account as it is an expense for the business. At the same time it is a gain to the proprietor(s) and hence it is added to the Capital of the proprietor(s) in the Liabilities side of the Balance Sheet.

_________________________________________

❒ Accounting treatment of Interest on Capital in Final ccounts :-

★ The accounting treatment of Interest on Capital at the time of preparation of final account will be depend on whether the item appears inside the Trial Balance or as an Adjustment.

• ➺ If interest on capital appears inside the trial balance : Where interest on capital appears inside the trial balance, it means that the necessary entry for recording the interest on capital has been passed. In such case, it will be shown on the Debit side of the Profit and Loss Account only.

• ➺ If interest on capital appears as an adjustment : Where interest on capital appears as an item of adjustment, it means that the necessary entry for recording the interest on capital has not been passed. In such case, it will be shown at two places — once on the Debit side of the Profit and Loss Account and again the amount will be added to the Capital Account on the Liabilities side of the Balance Sheet.