Question

interest on drawings 5% accounting equation ​

Answer 1

It will have no effect on accounting equation.
First it will be subtracted from capital and then added into it. it makes effect when it is charged in partnership firm.

Answer 2

Answer: The answer is as follows:

Explanation:

In this question, a person withdraws Rs.10,000 for his personal use. When a person withdraws an amount from the business for his personal use then this is known as drawings and interest is also charged on this drawings by the business.

Interest on drawings is 5%, so Rs.500 would be charged as an interest on drawings of Rs.10,000.

The effect of this transaction on accounting equation is as follows:

(1) Drawings (cash withdrawal for personal use): Rs.10,000 were deducted form the cash/Bank and Rs.10,000 deducted from the capital.

(2) Interest on drawings: Interest amount that is to be paid Rs.500 added and subtracted from the capital.