1
Question
Interest on capital will be ________.
Interest on capital will be ________.
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Solution
The correct option is C debited to profit & loss account
Sometimes, the proprietor may like to know the profit made by the business after providing for interest on capital. In such a situation, interest is calculated at a given rate of interest on capital as at the beginning of the accounting period. If however, any additional capital is brought during the year, the interest may also be computed on such amount from the date on which it was brought into the business. Such interest is treated as expense for the business and the following journal entry is recorded in the books of accounts:Interest on Capital A/c Dr. To Capital A/cIn the final accounts, it is shown as an expense on the debit side of the profit and loss account and added to capital in the balance sheet.
Sometimes, the proprietor may like to know the profit made by the business after providing for interest on capital. In such a situation, interest is calculated at a given rate of interest on capital as at the beginning of the accounting period. If however, any additional capital is brought during the year, the interest may also be computed on such amount from the date on which it was brought into the business. Such interest is treated as expense for the business and the following journal entry is recorded in the books of accounts:
Interest on Capital A/c Dr.
To Capital A/c
In the final accounts, it is shown as an expense on the debit side of the profit and loss account and added to capital in the balance sheet.
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