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Interest on capital
- 3. As per ‘BusinessEntity Concept’ capital invested by the proprietor in the business is considered to be loan given by him to the business. So there will a interest charged or allowed on capital. Interest on capital is an expense for the business, But it is an income for the proprietor. JOURNAL ENTRY : Interest on capital A/c Dr. Capital A/c Cr.
- 5. Interest on capital ………… Profit andloss A/cDr. Cr. Liabilities Amount Assets Amount Capital ……… Add: interest on Capital ……… ……….. Balance sheet
- 6.
- 7. Amount withdrawn bythe proprietor for his personal use from the business are called drawings. Considering the fact that the business is a separate accounting entity, it charges an interest on the drawings to the owner. And it is an income to the business. JOURNAL ENTRY : Drawings A/c Dr. Interest on drawings A/c Cr.
- 8. Interest on drawings ………… Profit andloss A/cDr. Cr. Liabilities Amount Assets Amount Capital ……… Less: drawings ……… .……. Less: interest on drawings .……. ……….. Balance sheet
- 9.
- 10. INEREST ON LOANPAID: Interest paid on loans taken by the business is treated as expense and will appear on the Debit side of the Profit and Loss account. INEREST ON LOAN RECIEVED: Interest received on loans given by the business is treated as income and will appear on the credit side of the Profit and loss account.
- 11. Interest on loan (paid) …………Interest on loan(received) ………… Profit and loss A/cDr. Cr. LIABILITIES AMOUNT ASSETS AMOUNT Loan ……… add: interest On loan ……… (PAID) ……… Loan ……… add: interest On loan ……… (RECEIVED) ………. BALANCE SHEET