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:
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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