Question

interest on drawings 400
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Answer 1

Answer:

Cash or Goods withdrawn by the Businessman for his personal use from the business is called Drawings.

In Such a case, Interest is charged on such drawings from the Businessman.

Interest on drawings is an income for the business, So interest on drawings account is credited. Interest on drawings is not received in cash, but debited to drawings or Capital account.

Journal entry for Interest on Drawings is as follows :-

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Drawings OR Capital A/c. Dr ... [Amount]

To Interest on Drawings A/c. [Amount]

(Being Interest on Drawings charged).

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Example:-

[Q.] Interest on Drawings to be charged @ 5% on the amount of ₹ 10,000 for 6 months.

Analysis of the transaction :-

Accounts Affected :-

1) Drawings A/c

2) Interest on Drawings A/c.

Nature of Accounts :-

Drawings A/c – personal

Interest on Drawings A/c – Nominal

Effect :-

Personal A/c – Dr. the (Receiver)

Nominal A/c – Cr. All (Income) and Gains.

Entry:-

Drawings A/c. Dr... 250

To Interest on Drawings A/c. 250

(Being Interest on Drawings charged @ 5% on ₹ 10,000 for 6 months.

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