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