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Providing Interest on Capital

When the Inte...

Question

When the Interest on capital is allowed to partners, Interest on Capital Account is debited and Partner's Capital Account is credited. It is called _____________.

A

an opening entry

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B

a closing entry

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C

an adjusting entry

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D

a transfer entry

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Solution

The correct option is C an adjusting entry
When the interest on capital is allowed to partners, interest on capital Account is debited and partner's capital Account is credited. It is called as an adjusting entry. Adjusting entries are usually done at the end of the year for incomes and expenses.

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