Question

Give journal entry through Profit and Loss Adjustment Account of Interest on capital________.

• A. A capital A/c Dr.
  B capital A/c Dr.
  To Profit and Loss Adjustment A/c
• B. Profit and Loss Adjustment A/c Dr.
  To A's capital A/c
  To Bs capital A/c
• C. Interest A/c Dr.
  To Profit and Loss Adjustment A/c
• D. All of the above

Answer 1

The correct option is B Profit and Loss Adjustment A/c Dr.

To A's capital A/c
To Bs capital A/c
Interest on capital is an appropriation (setting apart) of profit. If a firm has earned profit, it will have a credit balance in the P & L Appropriation A/c. So if you have to take a part from profit and put in the partners' capital accounts, you will have to debit (reduce) P&L Appropriation A/c and credit (increase) partners' capital accounts. It can be done directly or through Interest on Capital A/c.

Journal entry for interest on capital is :

Profit and loss adjustment A/c Dr.

To A's capital A/c

To B's capital A/c