| 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 |