Interest on drawing is ________ for the business.

expenses

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gain

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neither expenses nor gain

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expense or gain depending on the situation

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Solution

The correct option is B gain
When a partner withdraws cash from the firm for domestic use, the withdrawal of cash is termed as drawings. If the partnership deed has a provision of charging interest on drawings, the firm may charge interest on drawings from partners. Interest on drawing is a gain for the firm. It is calculated at the agreed rate. The amount of interest on drawings will be credited to Profit and Loss Appropriation Account and will be debited to partner’s capital account/current account (Individually).

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