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Standard XII
Accountancy
Interest on Capital Exceeds Profits
Interest on d...
Question
Interest on drawings is _________.
A
Expenditure for the business
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B
Expense for the business
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C
Gain for the business
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D
Loss for the business
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Solution
The correct option is
C
Gain for the business
Business entity concept defines that firm and its owners are having separate legal entity.
Hence, capital is shown as liability and interest charged on capital is considered as expenses.
Opposite to this, interest charged on drawing is to be debited to capital account and its a gain for the business.
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