Question:
Interest on Drawings is:
Interest on Drawings is:
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Interest on Capital is an expense for the firm, while Interest on Drawings is an income for the firm. Both are adjusted in the P& L Appropriation Account.
Updated On: May 30, 2026
- Expense for firm
- Income for firm
- Liability for firm
- Asset for firm
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The Correct Option is B
Solution and Explanation
Step 1: Understanding the Question:
Interest on drawings is the interest charged by the partnership firm on the amounts withdrawn by partners for personal use. We need to determine its nature from the firm's perspective.
Step 2: Detailed Explanation:
When a partner withdraws money (drawings), they are using the firm's funds. The firm charges interest on this.
1. From the partner's point of view, it is an expense.
2. From the firm's point of view, it is a gain or Income, as it increases the firm's profit. It is credited to the Profit and Loss Appropriation Account.
Step 3: Final Answer:
Interest on drawings is an income for the firm.
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