Question

in partners current a/c why does interest on drawings come on the debit side when it is a gain to the firm? same way why does interest on capital come on the credit side when it is a loss to the firm?

Answer 1

Hi Sheeba, do not get confused. It is very simple.
As we know drawings causes reduction in capital of the partners, therefore, these are shown on the debit side of the Partner's Capital Account. Similarly, Interest on Drawings is gain for the firm but it is an expense for the partner, therefore, deducted from his/her capital and shown on the debit side of Partner's Capital Account.

On the other hand, Interest on Capital is an expense for the firm but it is a gain for the partner, therefore, shown on the credit side of the Partners' Capital Account.

I hope this answers your query.
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