Question

Accounting entry for interest on drawings is __________.

• A. Profit and Loss A/c Dr.
  To Capital A/c
• B. Capital A/c Dr.
  To Profit and Loss A/c
• C. Interest A/c Dr.
  To Capital A/c
• D. None of the above

Answer 1

The correct option is B Capital A/c Dr.

To Profit and Loss A/c
According to separate entity concept, owner of the business is treated as other creditors for the business. If any amount is withdrawn by the owner for personal use, this will be treated as drawings.

Interest on drawing is an income for the business and it reduces the capital of the owner.

Accounting entry will be as under:

Capital A/c Dr,

To Profit & Loss A/c