In partnership accounting, how do we calculate and take up into the books of account INTEREST ON DRAWINGS

February 6th, 2011 Comments off
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Interest is imposed on drawings in excess of normal requirement to discourage excessive and unhealthy withdrawal of vital funds in a partnership.

How to compute or calculate interest on drawing:

  • Interest is calculated FROM the date the amount is withdrawn TO the end of the financial year.

Illustration:

A partnership’s year ends on 31 st December, interest being calculated at 5% per annum.  Partner A draws $2000 on 1 st April and $3000 on 1 st July, the total interest would be as follows:

5% on $2000 for  three quarter(3/4) year = $75

5% on $3000 for one half(1/2) year=$75

Total = $150.00

Bookkeeping Double entry  for interest on drawing:

Debit: Partner A ‘s Current Account   $75

Credit:  Appropriation Account               $75

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Financial Accounting

 
 

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